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The United States and China are two of the biggest and most important economies in the world. They greatly differ and in part because of these differences, they greatly rely on each other. The most important difference is that China is an export based economy whereas the U.S. is a service based economy.
The United States: A Service Economy
The United States: A Service Economy
The U.S. once heavily relied on the manufacturing industry to bolster its economy, but in the past two decades, there has been a clear shift in the types of jobs that Americans are working. Below, you can see on a state level what industries the majority of the population were working in. In the past two decades, there is a strong shift away from manufacturing towards services such as healthcare and retail.
The U.S. exports its services, but it is not accounted for as part of the goods that are imported and exported and the trade deficit. The highest earning U.S. services exports were travel and transportation ($236 billion in 2017), finance and insurance ($76 billion in 2017), and sales from intellectual property such as movies, software, music, etc. ($49 billion in 2017) (The Atlantic 2018).
Manufacturing jobs mostly diminished due to increased automation in factories because machines are faster, more reliable and standardized than humans, and do not require salaries, vacation days, or health care coverage. Another portion of these jobs were shifted to countries like China and India that massively prioritize their manufacturing industry.
Considering that the U.S. is making more money (jobs in the service industry usually pay better than manufacturing jobs), Americans are drawn to buying more goods, and they are especially drawn to foreign goods. Foreign goods that are imported to the U.S. are usually cheaper than American made goods, and also, there is more variety to choose from.
So, if the U.S. does not prioritize its manufacturing industry and instead has built up its services, then it has to import goods from somewhere else.
China: An Export Economy
China: An Export Economy
In the 1990s and early 2000s, China began to modernize thanks to economic reforms and a shift to a market-economy. The combination of "deindustrialization in the United States and industrialization and urbanization in China have allowed China to emerge as one of the world's biggest workshops" (Wang 2006, 13). China has seen economic success with its focus on exports, and it does not seem to be following in the U.S.'s footsteps anytime soon.
Trade truly transformed China by lifting millions of people out of poverty from the creation of factory jobs (Autor, Dorn, and Hanson 2016, 208), and with millions still left in poverty, the Chinese government seeks to improve domestically in addition to internationally.
The economies of China and the U.S. are not in direct competition with one another, but are supplementary. Accordingly, the trade deficit between a service economy and an export economy is sensical and should not be considered a problem in need of fixing. Read about the trade deficit.
The economies of China and the U.S. are not in direct competition with one another, but are supplementary. Accordingly, the trade deficit between a service economy and an export economy is sensical and should not be considered a problem in need of fixing. Read about the trade deficit.
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