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The Financial Crisis and the Great Recession

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The Financial Crisis and the Great Recession
Table below represent US trade balance with China over years (2007-2011):
Years Export
2007 62,936,891,576
2008 69,732,837,543
2009 69,496,678,611
2010 91,880,613,079
2011 103,939,433,941

Years Import
2007 321,442,866,934
2008 337,772,627,823
2009 296,373,883,488
2010 364,943,854,151
2011 399,361,922,088

Years Trade balance with China (millions of dollars)
2007 -258,505,975,358
2008 -268,039,790,280
2009 -226,877,204,877
2010 -273,063,241,072
2011 -295,422,488,147

China (in terms of trade volume) is the second largest trade partner of United States. Looking at the data, it can be noted that over the last five years, United States has continuously been in trade deficit with China i.e. Chinese exports to United States exceeds its imports from United States. Product wise, except for some primary sector products, manufacturing products and petroleum and coal products, the United States has trade deficit with China in almost all products. This means that United States is exporting more jobs than it is importing from China.
These data shows to what extent U.S economy is dependent on Chinese economy. United States is heavily dependent on Chinese economy for many its important requirements and as a result Chinese are holding huge amount of dollars as reserves. This is likely to put upward pressure on the value of Chinese currency and therefore Chinese currency would appreciate. The appreciation of Chinese currency might result in China losing its competitive advantage on global stage and therefore can negatively affect Chinese trade balance with other countries.
The huge and the continuous trade deficit which the US is having with China would cause dollar to depreciate further against Yuan. The depreciation of dollar might increase the competitiveness of US goods and services (because depreciation of dollar means fall in the price of US goods and services in terms of foreign currency) and therefore can have positive effect on the US trade


References: 1. http://www.federalreserve.gov/monetarypolicy/mpr_20110713_part1.htm 2. http://cbo.gov/doc.cfm?index=12316 3. http://fabiusmaximus.wordpress.com/2010/02/17/koo/ 4. http://www.economywatch.com/economic-conditions/us.html
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