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In: Economics

China and the U.S. - a Level Playing Field? The "level playing field" argument has been...

China and the U.S. - a Level Playing Field?

The "level playing field" argument has been used for years by anyone who feels that the competition from abroad is too intense. In the case of China, U.S. manufacturers argue that the currency (reminbi-yuan) is being manipulated and being undervalued, which makes Chinese goods cheap, relatively. More recently the reminbi has strengthened in value, however, it remains relatively cheap. It is also argued that the big Chinese steel and energy companies are State Owned Enterprises (SOE's) and not subject to the same constraints as a privately owned company - unfair competition in terms of easy financing, not having the same pressures to please shareholders, and of course, Chinese labor is argued to be dead cheap and not fair, too.

We see these arguments all the time from the U.S. and EU. So for this discussion, read a little (The Economist is a great source and the Financial Times will probably also help), but find some legitimate sources and let’s discuss the Chinese argument against the position that they are “cheating.” How can they defend their position?

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The Chinese can defend their low prices (which was due to various reasons like cheap labor,fixed currency rate, relatively less constraints to their large state owned companies) by saying that it is the business model and the regulations and other factrs that lead to low prices of the goods.

China should say that the markets for exports should not be constrained by imposing the trade resttricitons like the import tariffs,anti-dumping duties,etc.It can say that the their should be free trade instead.The market forces of supply and demand should dictate the markets but not the regulations.

Chinese can say that they are not cheating but it is just the factors which might be responsible for their low price of their products.They can say that they themselves by selling their goods according to their cost of production is not " cheating ".Infact they can say that " by not selling their goods at a much higher prices they are loosing their opportunity to earn more profits since they are selling at their appropriate prices according to their cost of production "

The Chinese can justify the reasons like the why their cost of labor is less by citing the example of high population,high productivity of labor in factories,higher number of working hours for labor,etc.They can say that the Cost of labor depends on the demographics,culture and other things mentioned above.

The Chinese can also justify the reason that large companies are state owned companies by saying that their economy is a socialist economy so it is bound to have such big state owned,state controlled companies unlike in the case of capitalist markets where the control is entirely in the hands of the market forces.

Hope this solution helps!! If it did,please give a " Thumbs Up" rating for the same !! Comment in case of any queries !!


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