Case Study

The International Trade Patterns of China and the United States

Thomas Edison State College

Jimmy Morgan

1.0 Introduction

Trade refers to the exchange of goods and services from one party to another with the aim of making a gain out of the transaction. “According to Chipman (1966), International trade is the exchange of goods, services and capital across borders of different countries. International trade formally began after the end of the Second World War”, (p. 3). It was due to globalization that trade between different countries emerged. Globalization is the assimilation of various factors of production between different countries bringing about improvement and cohesion in their modes of trade. This led to improvement of communication, transport and technology, thus, paving way for international trade. Countries involved regulate trade with import tariffs and non-tariff barriers such as export restraints, import quotas and other legal prohibitions such as taxes. For trade to take place across borders, countries have to partially or fully do away with the set tariffs, quotas and legal prohibitions; a process known an economic integration. This helps in the reduction in prices since no custom duties are paid.

2.0 Why China and the United States trade with each other

There was a need to govern international trade and this led to the emergence of certain institutions after the end of the Second World War. These include World Bank, International Monetary Fund, and General Agreement on Tariffs and Trade that was succeeded by the World Trade Organization in the year 1995, which has played a significant role in promoting free trade. Trade between United States and China has increased in the recent years due to the increasing demand in technology and exchange of goods and knowledge. Another reason for the relationship is the break of the Soviet Union, which forced China to trade with United States. United States and the People’s Republic of...