China's Impact on the U.S. Economy

Paper Summary:

This paper analyzes China's impact of the United States economy. It first analyzes China's economy, particularly its economic reforms from 1976 until 2006. The paper then discusses the US low savings rate versus China's high savings rate, the purchasing power of the U.S. consumers and how many companies of the U.S. have set up widespread manufacturing operations in China. It also looks at how China has helped in keeping the US interest rates at a relatively low level.

From the Paper:

"Due to its low savings rate, the U.S. economy is heavily dependent on countries such as China with a high savings rate, for its foreign capital inflows for promoting growth and funding the federal budget deficit. China has interceded in the currency markets to a great extent for limiting the appreciation of the Yuan. Due to this, China has become the fastest and largest growing holder of FER -- Foreign Exchange Reserves in the world, which amounted to $1.4 trillion as on September, 2007. A large share of its FER is invested by China in U.S. Securities, totaling almost $699 billion on June, 2006 which makes it the 2nd largest foreign holder of U.S. Securities, the 1st being Japan. Almost 16.8 percent of the total foreign ownership of the U.S. Treasury Securities was held by China in October 2007, amounting to $388 billion. Some policymakers of the U.S. are concerned that these large holdings might be used by China to influence certain U.S. policies which they oppose. All this goes to show the stronghold which China has over the U.S. and how it will impact the U.S. economy in the future. (Morrison; Labonte, 2008)"

Sample of Sources Used:

• Elwell, Craig K; Labonte, Marc; Morrison, Wayne M. (2007, Jan) "Is China a Threat to the U.S. Economy?" CRS Report for Congress. Retrieved 11 April, 2008 from http://www.fas.org/sgp/crs/row/RL33604.pdf
• Lilley, James R; Willkie, Wendell Lewis; American Enterprise Institute for Public Policy Research. (1994) "Beyond MFN: Trade with China and American Interests" American Enterprise Institute.
• Morrison, Wayne M; Labonte, Marc. (2008, Jan) "China's Holdings of U.S. Securities: Implications for the U.S. Economy" CRS Report for Congress. Retrieved 11 April, 2008 from http://www.fas.org/sgp/crs/row/RL34314.pdf
• Scott, Robert E. (2005, Jan) "U.S.-China Trade, 1989-2003: Impact on jobs and industries, nationally and state-by-state" A Research Report Prepared for the U.S.-China Economic and Security Review Commission. Economic Policy Institute--EPI Working Paper #270. Retrieved 11 April, 2008 from http://www.epi.org/workingpapers/epi_wp270.pdf
• United States Congress; Joint Economic Committee; Joint Economic Committee. (1997) "China's Economic Future: Challenges to U.S. Policy" ME Sharpe.

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