gE Blog Series: China & America Part 2 - Trade

This is the 2nd post in our series highlighting the economic relationship between the US and China. Today, we discuss trade.

As China continues down the path to globalization, some companies view the nation of nearly 1.7 billion as a possible “economic savior” in the down times. China has long had a reputation as one of the top exporting nations. In fact, China is expected to overtake Germany as the world’s top exporting nation by the end of 2009. This rise has been fueled by cheap labor, which made it attractive to buy Chinese products, despite environmental or qualitative concerns, which are now threatening to slow China's growth.

The Chinese manufacturing boom created a overly-relaxed environment in which almost anyone could open up a factory and make a handsome profit. However, the global economic downturn has taken a toll on those manufacturers, who can no longer rely on price to compete. Smart manufacturing processes, higher wages, and environmental reforms are being promoted by the Chinese government, who no longer desire to inhabit "the lowest level on the value chain."

Amidst China’s volatile export market, the country has also made an active effort to shift towards a consumer market. Eventually, spending from individuals, companies, and government is projected to overtake exports as the top source of GDP.

This has led to an interesting discussion among American CEOs on what role China might have in helping companies pull out of their slumps. With China’s vast number of potential consumers, and rising presence in the global economy, companies should be taking a serious look at China. Promotion of such consumerism will undoubtedly lead to the lowering of barriers to entry, allowing foreign companies greater and easier access to the Chinese market.

Selling to China wouldn't just help individual American companies - it would help the US economy as a whole, by undoing some of the excesses that resulted from the symbiotic economic unit that China and America formed during the height of the mid-2000's boom. China did all the selling and America did all the buying. It's time for China to start buying and for America to start creating something other than debt.

Can this strategy pull the world out of the economic slump? It remains to be seen. Yet, the jobs and capital needed in order to provide goods and services to a market of nearly 1.7 billion consumers eager to buy is a form of stimulus that should certainly be considered.