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China and the USA on Trade

"China does not need the USA, and the USA actually needs China"., a Chinese student said these words while we were in a Graduate Finance class. A heated debate followed in the class. Those who supported her view and those who opposed. The professor listened intently to the discussion, he did not like to obstruct the opinions coming in.

     I offered my opinion on the discussion. it was a pure methodical approach based on facts and numbers although observation. Of course I disagreed with the student. China, I countered was a giant poised for unprecedented economic growth. If it harnessed its geographic location and manufacturing and productivity prowess it could easily see phenomenal growth. However, to say China does not need the USA was, in my opinion a misnomer. Imagine if China stops exporting its goods to the USA. What would happen? We have to be objective and crunch the numbers and see the effect in terms of what would happen to its economy. A bulk of the goods in a lot of these giant retailers are predominantly made from China. The USA consumes the bulk of Chinese goods. The argument that China will find alternative buyers in its neighbors is fraught with misguided reasoning. Yes, it could trade with all those countries but the marginal propensity to consume the product can only reach a certain level in those countries. It cannot expand because China stops trading with the USA. Actually, it hurts China more. Well, you have to be bold and know what you are talking about when you argue against some of the best minds in the world. Yet I was not deterred because facts were on my side.

     Most recently, my 7 year old son told me he wants to go China. I asked him why? He stated to me because each time I go to the store or shopping, I am seeing a lot of items made in China. That really got my attention? So I asked him, "Why do you want to go there then?". He said, "I really want to see how they make so many goods like that". That might not seem important, but for a 7 year old to observe that, it is quite telling. There is no doubt there is so many goods from China in the USA. Consumers are readily available to buy the goods. The point here is to underscore that China needs the USA as well. You would have to put narrow lenses in order for you not to see the point. Later the student saw my point as we began analyzing the dramatic effect of an absence of the USA in China or vice versa from an economic perspective.

     The moral drift of this article is understanding the world is become a village. What affects the USA affects China or any other country. Although every country has its own borders, cultures, political arena and many other unique characteristics, when it comes to trade, commerce and business in general, no country is an island.

     As we forge forward in the 21st century, fair foreign policy can only but enhance respective countries. This is just ancient wisdom.

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