Global Leadership
There has been steady rise in global trade where individual economies are integrated into world markets to ensure free trade among several countries. The global trade involves trading in imports and exports among several world economies. There are those economies which are leading in their exports and are termed to be global leaders. Although there has been dominance of other world economies in the world market for long time, China has been on a steady integration since 1970’s and it has been successful to the amazement of other economies.
This paper examines the economy of China and its implications on the world trade. Furthermore, the paper will analyze the concepts of globalization and World Trade Organization.China Integration into World Market and Its ImplicationsThe Chinese economy has been opening up steadily since the country embarked on economic reforms from late 1970s.The initial step that China took in its economic reforms was to eliminate barriers of trade. This is because there were a lot of nontariff barriers in form of trade plans as well as controls and border measures.
The tariff charges were also very high at that moment. The gradual elimination of trade plans left only border measures in place in late 1980s and early 1990s. With continued reforms over time the tariff charges were reduced and nontariff barriers greatly eliminated. The country also used duty exemption incentives to uplift export production. The tariffs has been greatly adjusted and currently over half of its imports enter China almost duty free thus allowing its industries to be competitive in their sectors due to cheap raw materials (Yang, 2003).
These reforms have enabled the Chinese to increase its exports tremendously.During the late 1970s the exports were about $10 billion per annum but this has changed steadily to $326 billion in 2002 which is about 5% of the entire world export. This development has propelled China to become the sixth largest world trading nation. The China export several commodities thus enhancing diversified market but of late it has increased its labor-intensive manufactured products such as textiles and electronics to dominate the global market (Yang, 2003).Moreover, part of the China reforms was to welcome decentralization of its trade activities and provision of economic incentives to businesses engaged in trade which led to increased Gross Domestic Product (GDP).
The other reform that was crucial for China was introduction of government joint ventures that attracted huge Foreign Direct Investment (FDI).The benefits of FDI have been tremendous over the years with inflow benefit of $53 billion in 2002 which overtook the United States to become the largest FDI recipient in that year in the world. These FDI benefits have been used to expand export products and propelled China to Global Market leadership (Yang, 2003).Furthermore, China has had success in its agricultural sector that has enabled it to be dominant in the global market. According to Huang, Liu, martin and Rozelle (2007), there has been tremendous growth of agriculture in the last three decades. This is despite its largest population in the world which consumes a lot of its produce thus the resulting effect is net export of food in several years.
The availability of food has saved it a lot of import costs which could have had a negative impact on its economy.The China agricultural sector is one of the improved due to its nature of being relatively liberal and more integrated to the world market (Huang et al., 2007). The success of agriculture in China was contributed by its reforms and opening up of world trade making it able to export any surplus and maintain enough of its own. Thus few economic distortions out of food are affecting China’s economy which is growing at peak rate.The implications of China in the social culture as observed in the trade industry are both positive and negative.
Firstly, China entry into world trade has brought in opportunities for export markets for other countries. Since China is importing a lot of its raw materials for labor-intensive manufacture industries, the other economies have had market in China. On the other hand, the China has also been able to access the global markets for its ever rising exports.Thus the Chinese has been able to sustain its consistent growth by virtue of having access to ready world markets (Yang, 2003).However, these improved business opportunities have brought in fierce competition with other developing countries.
Some of these countries do not have competitive advantage as the China industries which buy their raw materials almost duty free. Thus their products would be more expensive giving way to the Chinese products which are relatively cheap and leading to the edging out of those developing countries in the economy. This is one of the negative impacts on the culture of those developing countries as they give way to the global leadership of China in export market (Yang, 2003).Moreover, the other impact is on its attractiveness to FDI.This results from the fact that with its competitiveness, China will be in a position to divert investments away from other developing countries.
This has been clearly demonstrated from Asia countries. The China has been able to raise its FDI whereas Asia Countries have dropped at the same time thus attributing it to China’s entry to global market (Yang, 2003).The emergence of China to a level of global leadership means that it has caused a lot of impacts to other economies especially after being admitted to world trade organization in December 2001. The world has to adjust in short and medium terms so as to benefit from its integration.The resulting outcome of the accelerated Chinese economy in global market will continue to benefit some countries as well as having limited impact on others. These economic changes has caused rapid increase in economic markets, price dynamics, exchange rate fluctuations, change in fiscal policies, banking system reforms, unemployment rate variations as well as the general outlook of the world economy (Prasad, 2004).
Globalization is the process by which productions and markets in different countries are becoming increasingly interdependent. This has been made possible by the increasing flow of goods and services through trade among the countries. Also, the concept of flow of capital and technology has become so dynamic in their interdependence.This process is continuation of trade improvements from time to time where innovation and creativity is enhancing the whole process of globalization (Held, 2000).Moreover, the concept of globalization involves companies investing in overseas countries to benefit from cheap production costs.
These companies believe in the capacity of those countries to manufacture their products and as such would take advantage of global legislations that allows it to invest competitively oversea (Held, 2000). The country of investment will also benefit from the FDI which earns it foreign income and improves its economy. These improvements come in terms of job creations for that country’s locals as well as improvement of infrastructure.Advantages of GlobalizationThese are the advantages of globalization that have been enjoyed by several countries over time. The immediate and biggest benefit of globalization is economic improvement.
The countries are able to put their investment savings in the most productive projects irrespective of their location. There are those countries with investment capital but their countries do not support projects with heavy returns. Thus globalization has enabled them to access other countries and carry out investments of their desired magnitude (Basedow & Kono, 2000).The other benefit from globalization is the creation of possibilities for international pooling of risks and diversification of investments. When investors buy foreign securities, they are able to diversify away from some of the systematic risks connected with their home markets and be able to benefit from risk-adjusted returns.
The impact of recession on some countries will be mitigated by foreign investments which may not be affected by the economic crisis (Basedow & Kono, 2000).The company issuing the securities to foreign countries benefits from the foreign capital which may not be available locally. In bad economic times in a particular country, they may borrow from the other country and salvage collapse of their projects.Thus the benefit of globalization is generally the welfare gains of free capital flows which are significant for any sensible growth (Basedow & Kono, 2000).The other gain is political stability. This is achieved through the disciplinary function of national policy makers who might be tempted to exploit domestic markets to their advantage.
The globalization would help in policy regulations that ensure that the governments in several countries do not take the advantage of citizen’s savings through inflation and negative real interest rates. Thus the availability of global markets has a wider regulation beyond local policy makers which is advantageous for country’s investments (Basedow & Kono, 2000).Disadvantages of GlobalizationThere has been job loss due to imports and production shifts in some countries. This is because some local industries may not survive the stiff competition and as a result, they may relocate to other countries that have cheap operation costs. As a result jobs are lost or people are forced to be underpaid because the companies are not competitive (DuBrin, 2008).There has been shift of wealth from the point of view that the poor have been pushed further to poverty while the wealth is shifting to those well off in the societies.
This is due to the fact that profits and executive salaries increase while the workers are toiling and making miserable wages. This is in the attempt for companies to be competitive in the global environment (DuBrin, 2008).The globalization is hurting the national pride of several countries. For instance, we hear laments of Americans saying, “Nothing is made in USA any longer”. They claim that everything has been imported leaving citizens not to have pride in their own products. There are situations that foreigners have come and worked in the local industries due to globalization which may not be pleasing to the locals who feel that they should be given more chance to work in their countries as compared to foreigners (DuBrin, 2008).
World Trade Organization (WTO)This is an organization made up of member countries which is intended to liberalize international trade which comes out of globalization. The organization regulates trade between participating countries. There are rules set by the member countries that enable it to succeed in its operations. There has been recent entry of China to the WTO with its design of institutions working effectively as a developing country. By accession to WTO, the developing countries are able to reduce barriers of trade and gain access to larger markets. We analyze advantages and disadvantages of membership to WTO among the developing countries so as to determine the organization’s impact on these countries.
Advantages of WTOThe quick and the largest benefit is access by developing country’s national exporters to international markets and means of dispute resolution globally.There is also a guaranteed possibility of benefiting from any reductions of custom tariffs among member countries, which enable countries to protect international positions as producers. These benefits depend on the capacity of any country to participate in the international trade where high participation means more benefits and vice-versa (Burakovs’kyi, Handrich, ; Hoffmann, 2004).The other benefit is that of trade stability and predictability. The WTO legislations require that the countries are transparent on their tariff concessions and any legal commitments.
The transparency enables national and foreign businessmen to understand all business implications and can predict the business trends following the laid down WTO procedures. Due to this regulation, there is stability in business environment. The countries should comply with the rules to access the concession and keep on maintaining them which helps developing countries to predict market trends while making their policies (Burakovs’kyi et al., 2004).The other positive impact is on the national policies and relevant institutions in developing countries.
The countries will be able to share policies with developed countries which enable it to strengthen its own business institutions for further business engagements. These benefits comes through useful incentives for reviewing laws and regulatory procedures towards achieving integrity which could have not been done had the country not aspired to WTO accession (Burakovs’kyi et al., 2004).Disadvantages of WTOThe most prominent of the disadvantages of WTO is that associated with sanctions imposed on countries which fail in its rules. The act of using sanctions in itself undermines the free trade advocated by the WTO.
The sanctions are given in the belief that the sanctioned countries shall improve in their trade policies. However, the whole process will hurt a developing country which may not have means of changing its policies immediately thus having to loose from trade out of long waiting periods (Hudec, Kennedy ; Southwick, 2002).The other disadvantage is that sanctions encourage discrimination against the sanctioned countries.There are the favored developed countries which may not be sanctioned even in the event of policy changes but others who are sanctioned may be discriminated in future business engagements. There are those countries which do not prefer any dealings with ever sanctioned countries and as a result the discrimination is carried forward to the future relations. It is not clear whether the discriminations are directed for retaliations, sometimes, but in general it has negative impact on developing countries (Hudec et al.
, 2002).There are unequal opportunities among members of WTO. The powerful countries tend to favor large economies over smaller ones. This is a disadvantage to the small countries and the entire WTO system which fail to serve its mandate of equity for all participating nations.Since the small countries are largely depending on large countries for trade, these unequal opportunities hurt the developing countries and as a result do not benefit from the whole concept of WTO (Hudec et al.
, 2002).The concept of globalization has created WTO to spearhead world trade. This arrangement has better benefits to the member countries as compared to the disadvantages. Thus the developing countries are able to grow more with globalization where appropriate policies are put in place. The China has been able to rise steadily in its economy as a developing country to a global leadership position currently.
Its accession to the WTO has enabled it to benefit more with the international markets available and its regulations. Therefore the future growth of China and other developing countries is going to be boosted by globalization made easy through WTO.
