President Barack Obama is visiting China and promoting better economics ties between the two nations. Will his words bring about change or will China’s economy, along with related exchange traded funds (ETFs), march to its own tune?
The U.S. trade deficit grew to a more-than-expected $36.5 billion in September, and 60.5% of the deficit was to China alone, writes Justin Fox for TIME. The U.S.-China economic relationship won’t be resolved anytime soon because of U.S.-based corporations selling products that were partly or entirely made in China. The more important fact, however, is that there is no way to ignore a rising political and military power like China. (Reasons to watch China).
The trade model between China and the United States remains unchanged, with China keeping the yuan artificially low and focusing on its export industries while the United States incurs a higher trade deficit and more debt, remarks Mark Trumbull for The Christian Science Monitor. (Is a strong Chinese yuan a good thing?)
Obama has not shown any pushback against China’s seemingly non-free market policies, despite promises on a tougher stance on China. However, economists are doubtful that any pushback would occur, citing several reasons:
- The tougher approach could result in higher-priced goods for U.S. consumers and the protectionism would rapidly spread to other nations, putting up trade barriers.
- China’s manufacturing power is not slowing one bit.
- An adjusted yuan won’t necessarily help U.S. manufacturers.
- The United States doesn’t have much leverage on China since China is the country’s main lender.
U.S. trade representative Ron Kirk stated that the United States wants trade and investment barriers removed to promote an open global trade system and Obama wants the United States to pursue “pragmatic cooperation” with Beijing, according to BBC News. Obama also urged Asian countries to break away from their dependence on exports and pursue “balanced,” sustainable growth.
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- iShares FTSE/Xinhua China 25 Index (NYSEArca: FXI): up 58.2% year-to-date