China increases and US decreases

As China overtakes Germany as the world’s largest exporter it affects China’s biggest importer the US. Statistics show that the exports rose 17.7 % in December despite the global economic downturn it has led a fall in demand for products. It is vital to understand that this surge in China’s productivity is a turning point of the economy.  However the US believe is unfair that China has been able to make its good cheaper by keeping the yuan weak, but Prime Minister Wen Jiabao has said China “will not yield” to foreign demands that it revalue the currency. Conversely to China’s success the US are in a bitter situation as unemployment rises. US employers have cut 85,000 jobs in December with the unemployment rate at 10%. In 2009 alone, the economy lost 4.2 million jobs. Suffering under a massive deficit of more than 1 trillion dollars it is clear some type of stimulus must be injected in the economy.  A solution that can possibly help the economy are different type of protectionism, such as tariffs and quotas. Tariffs can benefit as it reduces supply and raise the price of imports (China) by puting tax on foreign imports. In addition, Quotas can increase aggregate demand for the domestic economy as restricts the maximum amount of imports allowed into an economy. With these two types of protectionism, the US should show a recover gradually.

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~ by scioneconblog on January 11, 2010.

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