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The Role and Potential of China and India

Outline

This paper provides an analytical comparison and contrast of the roles of India and China with respect to the business partnership with US. The various aspects of the topic are discussed to reflect upon the business scenario. The causes and effects of the two countries, India and China with respect to the globalization and the prevailing macroeconomic conditions is compared. Also, the trade barriers, FDI policies and the socio-cultural factors are used to draw the desired contrast.

Being one of the biggest consumer markets of the world, the US needs to have business partnership with the leading manufacturing nations of the world like India and China. This not only provides economic growth opportunities for countries like India and China, it also helps US attain the desired goods at cost advantage. The strategic partnership supports the global business scenario and works as an anchor for expanding the opportunities for global economy, bilateral trade and economic dynamism.

China has emerged as a great manufacturing hub for various types of manufactured goods as well as for computer hardware. The US based businesses find it cost effective to get the manufacturing done in China. China has been able to provide this manufacturing cost advantage by utilising

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economies of scale and a large availability of skilled labour. India does compete with China in manufacturing sector and has been able to garner some share of manufacturing business from the US but China still has a lot of prime mover advantage and hence a much larger share of the business.

The businesses in US are at times wary of outsourcing hi-tech manufacturing work to China as well as India due to the poor record of intellectual property rights protection in these countries. China fares badly when compared to India in this regard. Due to better IPR protection the private sector companies in India have been able to integrate into the supply chain of the US defence manufacturers as well India has proven to be a favourite outsourcing partner for US when services such as software development are required. India offers a large English speaking talent pool with science and maths degrees. China has been coming up with computer software but is still lagging behind India. Indian companies have spotted opportunity in partnering with China and have gone ahead and opened development centres in China.

In terms of India’s major trading partner, USA continues to lead. However, India’s share in US trade is twenty fourth in the US export and eighteenth in the US imports. The business partnership with US helps India accrue the Foreign Direct Investment (FDI) benefits into the economy in terms of the technological advancements and the skilled employment. India’s sizable population and growing middle and higher income class makes India a potentially large market for U.S. goods and services.

U.S. and China trading relations have expanded substantially over the past several years. China is now one of the largest third-largest U.S. trading partner, both in terms of source of imports, and one of its largest export market. With the largest population in the world and an expanding economy, U.S. exporters see China as their largest market. Commercial ties with China have not been very healthy due to a surging U.S. trade deficit with China ($162 billion in 2004), poor protection of U.S. intellectual property rights (IPR) and China’s pegged currency policy.

Trade between India US and India as well as US and China are complimentary in nature even though there is a trade deficit between these nations. The US consumers have a greater purchasing power than the Indian or the Chinese consumer and therefore they buy more imported goods. The imports into US is primarily made up of low value articles for which there is a greater demand where as the exports out of US comprises of high technology machines, computers, aircrafts etc., which are demanded in smaller quantities.

There is a great potential for these three countries to develop bilateral trade among themselves given the high technology, consumer power of the US and the low cost manufacturing bases of India and China coupled with the a huge population which has a potential to be consumer of US goods and services.

Works Cited

Griswold, D.T., The US Bilateral Trade Deficit with China is not a sign of US Economic Weakness. Trade Resource Center. Retreived on May 19, 2009 from <http://trade.businessroundtable.org/trade_2006/china/trade_deficit.html>

Morrison, W.M., China US Trade Issues. (2005). Retreived on May 19, 2009 from <http://www.fas.org/sgp/crs/row/IB91121.pdf>

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