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How China Impacts the U.S. Economy

The U.S. and China dominate the global market as the world's largest economies, with $15.7 trillion gross domestic product (GDP) and $8.2 trillion GDP in 2012, respectively.[1] But, size doesn't make a country immune from external market forces. In fact, the U.S. and China play significant roles in one another's economies and the foreign exchange market.

Here are some insights into the relationship between these two economic powerhouses.

The Role of Currency Value

China's control on its currency value often results in cheaper exports from China and frustration in the U.S. that China is not competing fairly in trade, says Frank Lavin, CEO of Export Now, a U.S. company that helps companies around the world run e-commerce activities in China.

“It’s a major trading relationship that benefits U.S. consumers, but U.S. companies have more competition than they previously had to deal with.”

— Frank Lavin, CEO of Export Now

"On the one hand, we want U.S. product to be cheaper and Chinese product to be more expensive, but [U.S. businesses] buying material from China will suffer," says Wing Fok, director of Asia business studies at Loyola University New Orleans.

China increases the supply of its own currency to buy U.S. Treasury bonds, which increases their demand, and lowers overall interest rates. "With lower interest rates in T bonds, other interest rates become lower, as well," Fok says. "End result is it fuels more purchase of Chinese products."

The Role of Chinese Economic Growth

If the Chinese economy continues to grow about 8 percent a year, both competition and opportunities will increase on a global scale, says Dr. Penelope B. Prime, professor of international business at Georgia State University in Atlanta. Chinese companies will start more companies or joint ventures in the U.S., increasing the number of Americans working for Chinese firms. "China will become a supplier of capital," Fok says.

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A trend that's likely to emerge is Chinese brands entering the U.S. market similar to the way Starbucks and other popular American brands have penetrated the Chinese market, Prime says.

Lavin adds, "It's a major trading relationship that benefits U.S. consumers, but U.S. companies have more competition than they previously had to deal with."

At the same time, more opportunities will arise for U.S. companies to export and invest in China. For example, corn is exported from the U.S. to China for a variety of uses ranging from cattle feed to corn syrup used in food products, Prime says.

As U.S. firms seek to grow their business in China or the global market, they can use a trusted online foreign exchange service to provide transparent, reliable money transfers and insight related to currency exchange rates.

The investment relationship that has blossomed between China and the U.S. benefits both countries, Lavin says. The country on the receiving end of the investment receives an opportunity to hire more workers and gains more product purchasing options for consumers, while the country that makes the investment gets a financial return. "In general, cross-border investment takes place because of the benefits that withstand from it," Lavin says.

[1] "World's largest economies," 2012, CNNMoney

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