International imbalance China, USA USBIC

International imbalance According to the United States Business and Industry Council
According to the United States Business and Industry Council’s statement, the world will go into a major crisis because of the international imbalance created by increasing imports by the U.S manufacturing industry. As such, the council opposes these imports.  The essay henceforth refutes the council report and explains other factors, which may lead to international imbalances rather than increase in imports.
Taking U.S import from China, help understand why the U.S manufacturing industry may prefer importing than producing. In China, the cost of labor wages in manufacturing industry is lower that it is in U.S. This leads to low production cost making the final product cheaper. Although, on the other hand, the cost of transport may be high, the amount saved in buying goods at low prices, caters for expenses incurred.
Secondly, the benefits of these imports to the retail industry and the consumers outweigh the costs. Through buying the raw materials they need from china at cheap prices, U.S manufacturers may be able to offer goods at lower prices to retailers and consumers. Raw materials from china can be used to create high value products, which are attractive to customers hence giving retailers room to thrive while selling to customers. The manufacturing industry can also use the benefits to expand the area of operation, providing a variety of products to both retailers and consumers.
Considering the negative side of increasing imports, favors only manufacturers who suffer disadvantage leaving consumers and retailer who have an advantage in cheap imports. Therefore, the report should reflect the general goodwill for the country rather than taking one side of the manufacturing industry. Manufacturers should be innovative and find new ways to compete with the increasing imports.
One of the reasons raised in the report is that, with the decline of manufacturing in U.S., many people become jobless. This is a good argument, but industries in the U.S are no longer labor-intensive: most of the factories are highly mechanized and, so the job losses may not be significant. In addition, it is possible to create many more jobs in the services sector and new cost-effective industries with the benefits realized from the imports.
Arising from the above analysis, therefore, it appears that increasing imports by the U.S manufacturing industry is not the principal cause of the world crisis. International imbalances may be a result of continuous differences in trade positions of countries involved in the international trade. Trade surplus or deficit may arise in situations where a country has a limited base in which to export its commodity. For instance, countries exporting relatively price-elastic products may see the trade surplus increase in relation to the international cycle of commodity prices.
Another cause of imbalance is the exchange rate alignment or misalignments, which may lead to either deficits or surpluses, regardless of the country specialization. The exchange rate alignment or misalignment may be because of political interventions. It mostly happens in countries, which rely on exports to develop their domestic economies.  Competitive exchange rate in such countries enhances the aggregate demand and raises employment (Akyüz 2010).

Changes in the net foreign asset position may also cause the international imbalance. Foreign assets position is majorly caused by the differences in returns on capital (after tax). The differences come because of short-run cyclical factors as countries follow different macroeconomic policies.

References

Akyüz, Y. ( 2010). Export dependence and sustainability of growth in China and the East Asian production network. South Centre: Geneva.