International Trade and Enterprise Report: China's Trade Analysis

This report provides a comprehensive analysis of China's international trade, examining its historical context, current trade situation, and the factors influencing its terms of trade over the past decade. It delves into the impact of trade wars, particularly the US-China trade conflict, on China's economy and global trade dynamics. The report explores the fluctuations in China's terms of trade, highlighting the relationship between exports, imports, and welfare. It concludes by emphasizing China's reliance on exports for economic growth and the need to navigate trade challenges effectively, including finding solutions to trade wars to prevent other countries from benefiting from trade diversion.

Running Head: INTERNATIONAL TRADE AND ENTERPRISE
INTERNATIONAL TRADE AND ENTERPRISE
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Executive Summary
International trade is exchange of the services and goods between the countries. It
helps in representing vital share of GPD. Hence, this report will analyze trends of the
terms of trade of China over last 10 years. Further, identification and analysis will be
on factors that affects trends of terms of the trade and analysis of the way terms of
trade has affected welfare in China. Therefore, this report has analyzed that China is
largest exporter in world; however, in current situation, the effects of trade wars
between US and China indicates that while the country China is feeling the pinch,
the other countries is getting benefit from the effect of trade diversion.

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Table of Contents
Introduction...................................................................................................................3
Discussion.....................................................................................................................3
Trade History of China..............................................................................................3
Current Trade Situation of China..............................................................................3
Factors affecting trend in Terms of Trade and Welfare of China.............................5
Conclusion....................................................................................................................5
Reference.....................................................................................................................6

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Introduction
International trade is exchange of the services and goods in between
countries. In most of the countries, these trade represents significant GDP share.
Trading globally helps in giving countries and the consumers, opportunity of the
exposure of services and goods, which are not available in their countries. Terms of
trade is relative prices of exports in imports terms. It is described as ratio of exports
prices to import prices. The interpretation of it can be done as import goods
amounts, which the economy can purchase every unit of the export goods. It is the
relationship in between prices at which exports are sold by country and prices are
being paid for its imports (Anderson and Yotov 2016). Hence, this report aims to
analyze terms of trade of China over last ten years. Further, identification and
analysis of the factors affecting trends in terms of trade. Lastly, analysis will be done
on the way terms of trade is affected by welfare in China.
Discussion
Trade History of China
Trade has now become vital part of the overall economy of China. It has been vital
technique used by country for the modernization of economy. Since early 1950s,
foreign trade direction of the China has undergone and marked the changes. In year
1950s, three fourths of total was being accounted by the trade with the countries of
noncommunist. However, after end of one year of the hostilities during the war of
Korean, situation got reversed and the countries of communist accounted for up to
three-fourths. After next few years, world of the communists’ has lost certain of its
prior significance (Dür, Baccini and Elsig 2014). The breach of Sino-Soviet in 1960
has resulted into cancellation of the Soviet credits as well as withdrawal of the Soviet
technicians. The trade of China in 1965 has made up about the one-third of total.
The important part of trade of the China with developing countries has financed by
the grants, credits as well as other forms of the assistance. Initially, during 1953-
1955, mainly aid went to the North Vietnam, North Korea and other states of
communists but after mid-1950s, the big amounts such as interest free loans of long-
term and grants were promised to the politically developing countries who are
uncommitted (Schmitt‐Grohé and Uribe 2018). In Asia, principal effort were made
especially in Burma, Indonesia, Ceylon and Pakistan but larger loans were granted
in the Africa and in the Middle East. Further, prior to the death of Mao Zedong in the
year 1976, Chinese has scaled back these efforts. Moreover, the foreign trade of
China has come into full cycle, during 1980s and 1980s. The trade with all the
communist countries has reduced and trade with the noncommunist developing and
developed countries has become predominant. Generally, since year 1990, China is
having positive balance of the trade with the trading partners (Baier, Bergstrand and
Feng 2014).
Current Trade Situation of China
China has been greatly benefitted from economy globalization with the
international trade as key tool of promotion. Foreign trading has been playing more
vital role in the promotions of economic development of China. Currently, country
China is the largest goods partner of trading with total amount of $659.8 billion in the
total goods, during the year 2018. The exports of goods has totaled up to $120.3 b
and imports of goods has been totaled up to $539.5 b (Feenstra 2015).

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In the current situation, there is trade war between US and China. This
incident is latest spat in between two biggest economies of world and it comes days
after they have announced truce in form of the mini-deal for reducing some of the
tariffs in bruising trade war that has weighted on both the sides. The agency of UN
has noted that it has been found that the exporters of China may have started for
bearing part of tariffs costs by lower down the prices of exports. This hardest hit of
manufacturing sector of the China has been on computers and the other machinery
of office and equipment of communication, in which exports have been declined by
$15 n. Further, the trade war has resulted into global warming. This global warning
or trade war is not only affecting major participants’ but it is also compromising future
growth and global economy stability. The trade wars indicates that China is feeling
the pinch, the other countries is getting benefit from the effect of trade diversion
(Jones and Kierzkowski 2018).
During the period from 1980 to 2018, average value for the China was 95.76
percent with the minimum value of 79.05 percent in year 2011. The calculation of
China terms of trade are export’s value as percentage of imports value. The increase
in terms of the trade means that the value of exports is rising relative to value of the
imports. The country could afford towards buying more imports with revenue from its
exports such as hike in oil prices rises terms of trade for oil-exporting countries and it
reduces this for the other countries. However, because of global warming terms of
trade has been decreased during the years 2017 and 2018 (UN News. 2019).
Chart 1: China Terms of Trade
There is increase in Terms of Trade in the China from 102.49 points of index
to 103.45 index points. The China terms of trade is averaged 98.40 index points from
year 1993 to 2019. It has reached all time high index points of 118.33 in February
2009 and recorded low index points to 81.75 in February 2010 (UN News. 2019).

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Graph 2: China Performance of Indices
Factors affecting trend in Terms of Trade and Welfare of China
The steadily increase in foreign trade in the China with export accounted for
greater and the greater proportion. Some scholars of China has claimed that
economic growth strongly depends on exports. The real GDP growth in China is
backed up by the investment, expenditure and consumption. Hence, when analyzing
the relationship between the exports and real GDP, investment and consumption has
to be controlled. The China growth of economy, strongly relies on export. Since, the
country China has now become largest exporter of world; hence, increase in the
export demand will be having greater impact on world market price (Coudert,
Couharde and Mignon 2015). The mode of trade processing of the combination of
international labor and capital in China that can be moved to the other districts, is
vital for studying whether economy of China is experiencing immiserating growth or
not. The mode of trade development in the China is more as that in Japan and
Germany, is forward moving to the high-tech products with the high price elasticity of
demand. Further, the gains from economic growth has laid stress upon export may
get offset by the worsening terms of the trade, which leads to the absolute reduction
of the domestic consumption level and income level of residents (Hazari 2016).
Conclusion
Therefore, this report concludes that the China is one of the largest exporter
of world. The trend of terms of trade over last 10 years shows that there has been
great fluctuations in the trade. However, in the last two years, the terms of trade of
the country has been reduced. Moreover, the report has analyzed that the current
situation of terms of trade of China is trade tariff spat in between the China and,
which has been in lose-lose situation for both of the countries as well as wider world.
Lastly, this report has analyzed that economic growth of China relies more on the
exports. Therefore, China is require to find the ways for ending trade wars and not let
other countries for getting benefit from trade diversion effect.

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Reference
Anderson, J.E. and Yotov, Y.V., 2016. Terms of trade and global efficiency effects of
free trade agreements, 1990–2002. Journal of International Economics, 99, pp.279-
298.
Baier, S.L., Bergstrand, J.H. and Feng, M., 2014. Economic integration agreements
and the margins of international trade. Journal of International Economics, 93(2),
pp.339-350.
Coudert, V., Couharde, C. and Mignon, V., 2015. On the impact of volatility on the
real exchange rate–terms of trade nexus: Revisiting commodity currencies. Journal
of International Money and Finance, 58, pp.110-127.
Dür, A., Baccini, L. and Elsig, M., 2014. The design of international trade
agreements: Introducing a new dataset. The Review of International
Organizations, 9(3), pp.353-375.
Feenstra, R.C., 2015. Advanced international trade: theory and evidence. Princeton
university press.
Hazari, B., 2016. The Pure Theory of International Trade and Distortions (Routledge
Revivals). Routledge.
Jones, R.W. and Kierzkowski, H., 2018. The role of services in production and
international trade: A theoretical framework. World Scientific Book Chapters, pp.233-
253.
Schmitt‐Grohé, S. and Uribe, M., 2018. How Important are Terms‐Of‐Trade
Shocks?. International Economic Review, 59(1), pp.85-111.
UN News. 2019. US-China trade war is a ‘lose-lose’ situation for them and the world,
warn UN economists. [online] Available at:
https://news.un.org/en/story/2019/11/1050661 [Accessed 16 Dec. 2019].
UN News. 2019. US-China trade war is a ‘lose-lose’ situation for them and the world,
warn UN economists. [online] Available at:
https://news.un.org/en/story/2019/11/1050661 [Accessed 16 Dec. 2019].