Chinese Premier says country cannot grow in isolation
Why do countries trade? Countries trade for several reasons as the following:
- To provide a variety and different quality of goods for consumers
- To maintain good political relationships
- Sharing competitive and absolute advantages
- Recognition of domestic firms and more income are also why countries trade.
However,China has applied strong ‘economic policies’ which restricts countries to trade (more import) to China, so Chinese firms are exporting in a greater proportion than importing. And this is a big reason why China has been the world’s leading exporter, consisting of a low and stabilized currency helps the goods to other countries to remain cheap (which may seem like the quality is better). Since China has a big labour force, the labour market is very competitive; which in result causes the wages for general employees to be low. And this, is what I believe, I big advantage for domestic firms, because they will start off their businesses with lower costs but with better productivity workers and high labour forces. This results cheaper exports than other countries. Other than the cheap goods, China also puts on protectionism to protect their domestic firms and meanwhile concentrating on their exports. There are several protectionism in which a country like China may use:
Tariffs
Quotas
Protectionismare useful because it helps the domestic firms to maintain their production but at the same time allows some variety of goods for consumers; however these generally lead to a breaking relationship between countries. But I think it would not affect China as much since it has became a strong economy and especially in terms of exports, therefore other countries are less likely to put a large protectionism on Chinese made products.
Overall, China has ‘apparently’ decided to take away some of its policies and start to focus on its domestic goods, this means, other countries can be benefit because it will be less competitive. And in the future, if the Chinese government truly meant what they said, they will stop weakening its currency, lower their imports restrictions and allow more freedom in the market (such as investments, trading, etc).