Macroeconomic Environment of China and USA and its Impact on HP's Operation

The report offers a brief overview of macroeconomic environment in China and USA and its impact on company’s operation. Analysis also include fiscal and monetary policy framework and trade policy instrument in the two nations

Running head: ECONOMICS
Economics
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Table of Contents
Introduction................................................................................................................................2
Macroeconomic environment of China and USA......................................................................2
GDP growth...........................................................................................................................2
Unemployment rate................................................................................................................3
Inflation rate...........................................................................................................................5
Monetary and fiscal policy framework in China and USA........................................................6
Fiscal policy...........................................................................................................................6
Monetary policy.....................................................................................................................7
Foreign trade policy instrument in China and USA...................................................................9
Conclusion..................................................................................................................................9
References................................................................................................................................11

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Introduction
The Hewlett-Packard or commonly known as HP company an America based
multinational information technology company having headquarters in California. The
company offered a wide variety of software, hardware and related services to small and
medium sized businesses, consumers, large enterprises, health and education sectors. The
company also operates in China. China’s operation of HP includes manufacturing, sales,
R&D and different service units (hoovers.com 2019). The report offers a brief overview of
macroeconomic environment in China and USA and its impact on company’s operation.
Analysis also include fiscal and monetary policy framework and trade policy instrument in
the two nations
Macroeconomic environment of China and USA
Macroeconomic environment of a nation include performance of some of the key
indicators (Goodwin et al. 2015). The major indicators representing macroeconomic
environment are growth in Gross Domestic Product, rate of unemployment and rate of
inflation.
GDP growth

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Figure 1: GDP growth in USA
(Source: Tradingeconomics.com 2019)
USA economy recorded a growth rate of 3.4 percent in the third quarter of 2018. The
growth rate is below the growth rate of 4.2 percent in the previous quarter. Growth trend can
be explained by a slight downward revision of personal consumption expenditure, decline in
net trade and expansion of inventory accumulation.
Figure 2: GDP growth in China
(Source: Tradingeconomics.com 2019)
China’s economy advanced at a rate of 6.4 percent in January 2019. This is the
weakest growth since 2008. The weak growth resulted from on-going trade tension between
China and USA, weak demand in the domestic economy and growing debt burden of
government.
The economic growth in China though is relatively higher that of USA, the economic
condition is much stable in USA than that in China. The economic stability in USA
encourages HP to expands its business in USA rather than in China. The company has
already sold 51 percent of its stocks in China

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Unemployment rate
Figure 3: Unemployment in USA
(Source: Tradingeconomics.com 2019)
Unemployment rate increased to 3.9 percent in December 2018 from 3.7 percent in
previous quarter. The unemployment rate was highest since July. The number of unemployed
persons raised by 276 thousand to become 6.3 million.
Figure 4: Unemployment in China
(Source: Tradingeconomics.com 2019)

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The trend unemployment in China documented a continuous decline overtime. The
latest figure of unemployment showed unemployment showed recorded unemployment to be
3.8 percent. This is the lowest unemployment since 2008.
Rate of unemployment is both the nation is almost close to each other. The lower
unemployment rate encourages people to expand their business constituting a positive
influence on company’s business.
Inflation rate
Figure 5: Inflation rate in USA
(Source: Tradingeconomics.com 2019)
Inflation rate in USA in the fourth quarter of 2018 lowered to 1.9 percent from earlier
rate of 2.2 percent. The inflation now reached to the recorded lowest level mainly due to a
fall in cost of gasoline.

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Figure 6: Inflation rate in China
(Source: Tradingeconomics.com 2019)
Inflation rate in recent year reached to the recorded lowest level of 1.9 percent. The
trend was contributed from a recorded decline non-food prices. Food prices also remain to the
recorded lowest level.
Inflation rate in USA and China is at considerably low level. Low inflation rate
implies a lower real interest rate (Uhl and Gollenia 2016). The low interest rate means a
lower borrowing cost which is helpful for the business.
Monetary and fiscal policy framework in China and USA
Fiscal policy
USA
The current fiscal in US is too much expansionary in nature. The government propose
almost $1.5 trillion tax cut in December. The fiscal policy is now adding much fuel to the
largest economy in world. The tax cut is expected to stimulate economic growth from 0.25
percentage point to 0.49 percentage point (Ohanian, 2018) The expansionary fiscal policy not

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only stimulates economic growth but also helps to expand business through tax cut and
increasing profit.
China
Like USA, China also adapts an expansionary fiscal policy to support strong
economic growth. The ministry announces multiple fiscal policies for stabilizing growth and
introduces various tax breaks. The proactive fiscal policy is expected to help the economy to
meet growth target of 7 percent (Hu, Han and Zhang 2018). The tax cut and different tax
breaks are helpful for HP to spanning its business in China.
Monetary policy
USA
The Federal Reserve in USA design monetary policy through adjustment of Federal
fund rates. The fund rate by affecting short term and long term rates in the economy
influences household and firms’ activity.
Figure 7: Trend in Fed fund rate
(Source: Tradingeconomics.com 2019)

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The monetary policy committee recently proposed to increase fund rate by 25 basis
points. The increase in fund rate raise other rates in the economy impeding HP’s business in
USA.
China
Figure 8: Benchmark interest rate in China
(Source: Tradingeconomics.com 2019)
Unlike Federal Reserve in USA, the People’s Bank of China takes the decision to
keep benchmark interest rate unchanged. In fear that rising interest rate could hurt the
business and economic growth, the central bank in China has kept the rate at the same level
(Chinadaily.com.cn 2019). This is expected to help HP to do its business in China.

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Foreign trade policy instrument in China and USA
Figure 9: China/USA exchange rate
(Source: Fred.stlouisfed.org 2019)
The value of China’s Yuan to that of US dollar influences business in America. China
enjoys considerable currency power due to bulk of export to America. The trade deficit of US
with China is profitable for American companies. Since July 2018, Yuan value against dollar
increased significantly. This is beneficial for HP as it can enjoy a lower cost of raw materials
in terms of US dollar. The recent trade policy of USA to impose a heavy tariff on imports
from China resulted in a trade war between China and USA (Paquette 2018). As China
retaliates by introducing series of taxes on US import and US companies, this would
definitely hurt HP’s operation in China.
Conclusion
The report briefly summarizes macroeconomic environment in China and USA along
with fiscal and monetary policy framework and trade policy. The economy of USA recently
recorded a slower growth, a slightly higher unemployment and lower inflation. For China
economic growth is lower than previous decade but both unemployment and inflation is in

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recorded low level supporting HP’s business. The expansionary fiscal and monetary policy in
China also offer great help to the company. The recent trade war between China and USA
may create tension of company’s operation China because of possibility of retaliation by
China’s government.

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References
Chinadaily.com.cn 2019. Benchmark interest rate is likely to remain unchanged -
Chinadaily.com.cn. [online] Chinadaily.com.cn. Available at:
http://www.chinadaily.com.cn/a/201802/02/WS5a73ab05a3106e7dcc13a4e3.html [Accessed
30 Jan. 2019].
Fred.stlouisfed.org 2019. China / U.S. Foreign Exchange Rate. [online] Fred.stlouisfed.org.
Available at: https://fred.stlouisfed.org/series/EXCHUS [Accessed 30 Jan. 2019].
Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Macroeconomics in
context. Routledge.
hoovers.com 2019. Hewlett Packard Enterprise (China) Co., Ltd.. [online] hoovers.com.
Available at: http://www.hoovers.com/company-information/cs/company-
profile.hewlett_packard_enterprise_(china)_co_ltd.2d7df5ed45195c61.html?aka_re=1
[Accessed 30 Jan. 2019].
Hu, L., Han, J. and Zhang, Q., 2018. The Impact of Monetary and Fiscal Policy Shocks on
Stock Markets: Evidence from China. Emerging Markets Finance and Trade, 54(8), pp.1857-
1872.
Ohanian, L.E., 2018. The Macroeconomic Effects of War Finance in the United States:
Taxes, Inflation, and Deficit Finance. Routledge.
Paquette, D. 2018. U.S. companies in China brace for more trade-war pain. [online]
washingtonpost.com. Available at:
https://www.washingtonpost.com/business/economy/american-companies-in-china-brace-for-
more-trade-war-pain/2018/09/04/d161bed2-b028-11e8-a810-4d6b627c3d5d_story.html?
noredirect=on&utm_term=.3992cb6e1863 [Accessed 30 Jan. 2019].

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Tradingeconomics.com 2019. United States GDP Growth Rate | 2019 | Data | Chart |
Calendar | Forecast. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/united-states/gdp-growth [Accessed 30 Jan. 2019].
Tradingeconomics.com. 2019. China GDP Annual Growth Rate | 2019 | Data | Chart |
Calendar | Forecast. [online] Available at: https://tradingeconomics.com/china/gdp-growth-
annual [Accessed 30 Jan. 2019].
Uhl, A. and Gollenia, L.A. eds., 2016. Business transformation management methodology.
Routledge.