Everyday we hear about how fast China’s economy is expanding, so what impact does it have on the US economy and vice versa.  Given US is the largest economy in the world and the largest importer, and China is the 2nd largest exporters, its growing exports are shifting the profile of US imports. Few facts:

• US imports have grown steadily over the last 15 years at about 9% (CAGR, since 1990) and is expected to exceed $2 Trillion annually, by 2008.  
• All this time, interestingly about 50% of the total US imports came from Canada, Mexico, Japan and China (see chart), while the mix has shiftedsignificantly in favor of China.  
• China is already the 2nd largest exporter to the US, and at the current rate it will become the leading exporter to the US by the end of 2007 (at $340 B/yr.) surpassing Canada.

Since implementation of NAFTA (1994), US imports from Canada and Mexico have grown by 10% (CAGR).  On the other hand, since China’s entry into the WTO (2002) its US imports from China (and its total exports) have grown annually by 24% (CAGR). Meaning China is more agressive in trading with US.

No wonder why US demands China  play fair with its trade and fiscal policies, especially towards the US.  And, why China pays notice  to whatever US says.

Look for more news during Chinese Premier's state visit to the US in September, 2005.

Source: Source Global analysis using trade data from TradeStats Express 

For additional detail:
China calling Tune for US Economy
CAFTA another Flavor of NAFTA
China surges ahead of India

Quote:
China's economic growth unexpectedly picked up in the second quarter as exports surged and investment in power plants, mines and factories gathered pace.  Gross domestic product rose 9.5 percent from a year earlier after climbing 9.4% in the 1st quarter. (7/20/05)

China Shifts Its Stance Towards Global Trade

1: Two Chinese companies, Haier and CNOOC, backed off their initial intents to acquire two top American companies, Maytag & Unocal, respectively.

Interpretation: It appears that both Haier and Cnnoc decided to quietly withdraw their offers and not to further risk raising American public’s ire by appearing to hijack well-known American companies, a move that only helped Whirlpool and Chevron pickup some bargains.

For additional detail:
Corporate Dragons chasing the West
US right to block CNOOC offer

2: Chinese Central Bank announced changes in its long-standing position of ‘hard’ pegging China’s currency to the US Dollar; instead it will let it float in much broader band.

Interpretation:The resolution of the currency valuation issue by a very slight (less than 2%) correction, removes one of the main thorns in US-China relations. But others remain, including rampant copyright and trademark piracy in China, textile and apparel imports, military buildup by China, its human-rights record etc.

For additional detail:
Chinese Central Bank statement on revaluation
China issues contracts on Yuan
Need A New Currency Standard?

History of Managing Global Currency Exchanges Rates:

• Before World War/I - most countries tied their currencies to the gold standard
• Post-WW/I attempts to restore the gold standard made the global economy "vulnerable to the shocks that played a key role in causing the Great Depression"
• After World War/II - the victors established a system of fixed exchange rates known as the Bretton Woods system, (named for the hotel where the pact was negotiated)
• In the 1960s - U.S. tried devalue its currency, the Bretton Woods system broke down in 1973 and was replaced by a system in which most major currencies float against other major currencies, subject to verbal guidance from governments

India's Economic Regions

Much of India’s growth today is in areas previously favored by the British, which have more developed  infrastructure, access to capital and trained workforce.

Most of Indian manufacturing sector is concentrated in three regions supported by 11 privately/state operated Special Export Zones (SEZs).  India is taking a more or less privatized approach to stimulate growth by offering tax-breaks to attract investments in these and 35 other new SEZs.