Economic Consequences of the U.S. Trade Deficit with China

Economic Consequences of the U.S. Trade Deficit with China

There are several issues faced by the US due to trade deficit with china and India. Some of the issues the US economy face include: loss of jobs especially in manufacturing companies, reduction in wages of the workers and competition for cheap labor from less developed nations.

According to a research conducted in 2011, the U.S. trade deficit with China and India had caused a job loss of about 2.7 million people between 2001 and 2011 (Kimberly 31). It was also noted that this deficit did not only cause unemployment but also led to competition for cheap labor from undeveloped countries. This stiff competition for cheap labor caused downward pressure on the level of wages paid to the U.S. employees. The census conducted by the US census bureau in 2011 revealed that the wages of over 70% of the U.S. employees had gone down (Kimberly 34). The wage paid to US employees had to go down since China and India were using cheap labor in manufacturing industries making their products cheap and more affordable than the ones produced in the US.

It is, therefore, important to conclude that China and India’s competitive pricing result from lower living standards which allow their companies to pay lower income to workers. The Chinese government had also set an exchange rate that permitted pricing that is somewhat lower than a dollar causing a reduction in the cost of manufactured goods compared to those manufactured from the U.S. The US government must engage in talks with China and India to ensure that these countries adjust their pricing rates on exports and wages paid to its employees to meet international standards.

Work Cited

Kimberly, Amadeo. ‘US deficit with China.Editors Notes (2012).