China-US Trade Issues

In the previous section, we discussed the role of government in theoretical terms.
Within one week, Mr. Wen Jiabao, President and the General Secretary of the People's Republic of China has issued a press statement in response to the "Jasmine Revolution".

Today, we need to apply our theoretical understanding on a contemporary case. Refer to these familiar documents:

Working in groups, students need to explain the following:
  1. What is Balance of Payments?
  2. What is Balance of Trade?
  3. What is the Trade Balance in the US-China Trade Relations?
  4. Show statistical evidence from the source.
  5. How is this derived?
  6. What proportion of the electronics market contribute to the US-China Trade?
  7. How does demand for Apple Products affect the US Balance of Trade?
  8. What is the limitation of the US trade imbalance argument?
  9. Share your findings on a google document.

Review of student responses.
Sample 2


The effect will depend on the size, cause and duration of the deficit or surplus. In the short term a deficit will increase the standard of living. This is because the country will be consuming more goods and services than it produces. However, if the deficit is not covered by investment income or inflow of overseas investment, it will have to be financed by drawing on reserves or borrowing. Reserves are not finite and it may be difficult to find willing lenders. In addition, borrowing and attracting overseas investments will later involve an outflow of interests, profits and dividends in the future, thereby weakening the investment income account.

A deficit will reduce the money supply if it is not ofset by the monetary authorities or another section of the balance of payments. It will reduce inflationary pressures.

In contrast a surplus involve a net injection of extra demand into the economy, and the opportunity cost of this injection is inflationary pressure.