Economic Indicators & Theories: US vs. China - Research Paper

Introduction

The most basic explanation of, economics is why people make the purchasing choices they do. Economics has three major concepts which are: supply and demand, incentives, costs, and scarcity. This paper gives the economic indicators and economic theories in the United States then lastly compares the economy with that of China; It strives to explain that the United States is the largest economy.

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Every country follows a specific economic theory that attempts to describe economic occurrences, explain the behavior of the economy and then provide ways to solve the economic phenomena. The United States possesses a HYPERLINK "https://www.investopedia.com/terms/m/mixed-economic-system.asp" mixed economy (" ECONOMIC ORGANIZATION OF THE UNITED STATES FOR INTERNATIONAL ECONOMIC POLICY," n.d.). It functions conferring to a financial structure that presents the feature of socialism and capitalism. The mixed economy safeguards private assets and consents to an amount of economic liberty in capital usage, but similarly allows government interventions in financial matters to realize social objectives for the good of the public.

A mixed economic structure possesses features of centrally planned financial regulation by the government and those of a free market. Market economies are manipulated in various ways in a mixed economy ("ECONOMICS AND META-ECONOMICS," n.d.). Governments may impose controlling restraints on intended businesses in the private market. Then, Private institutions may need government-approved permits to accomplish particular tasks. The government might ban some of the activities altogether and may also possess public assets or offer community services then implement tax plan or HYPERLINK "https://www.investopedia.com/terms/s/subsidy.asp" grants to alter the rate indicators in the market. Prices are allowed to fluctuate depending on supply and demand in a mixed economy market.

Additionally, several private dealings are permissible but under settings compliant to the government's objectives. The U.S. government has restricted regulation over the country's finances with governing boundaries, like certifying or prohibition of particular undertakings ("ECONOMIC ORGANIZATION OF THE UNITED STATES FOR INTERNATIONAL ECONOMIC POLICY," n.d.). The mixed economy in the United States allows for healthy competition and distribution of goods and services to where they ought to be.

The leading economies in the world are the United States and China. This is in terms of Purchasing Power Parity (PPP) and nominal methods. The United States leads in the nominal method while China is at the top in the PPP after overtaking the United States in 2014 (Chan et al., 2011). In 2019 the two countries shared PPP of about 40.70% and nominal of 34.25% of total HYPERLINK "http://statisticstimes.com/economy/gross-world-product.php" \o "Gross World Product" world's GDP correspondingly ("Decomposition of GDP per capita relative to the USA, %," 2008). Compared to the countries that come third, the GDP of the two countries is way higher, making them the only competition in the world. The United States has unemployment rates of between 18 to 20% ("Youth unemployment rate and unemployment rate, United States regions, 2013: the United States," 2014). China's unemployment rate has remained at 3.61 since 2018 (Chan et al., 2011). The inflation rate in China was 2.07 as of 2018 ("Unemployment rates: total," n.d.). The main reason for economic inflation in China is expansionary financial strategies and increasing wages. The U.S. has low inflation rates; for instance, it was 1.8% in 2019 (Chan et al., 2011). China has transitioned its economy to market-oriented from a centrally-planned structure; this has seen the country's economy grow to be the largest by PPP and second after the U.S. by nominal GDP.

The United States economy is powered by productive natural assets, a well-built infrastructure, and high efficiency. The nation also has the third-largest population in the world, which fuels its economy too. The mixed market economy system in the country allows for Equivalent Sharing of power, increased productivity in private organizations, harmless dock for poverty, increased job ventures, the autonomy of private firms to prosper by themselves and better chance for the government to endorse excellent strategies; This explains the low inflation rates and employment rates in the country, making it the largest economy.

To compare the GDP for the two countries, the use of purchasing power parity is the best approach. In this approach used, it makes China the largest economy compare to the US ("ECONOMIC ORGANIZATION OF THE UNITED STATES FOR INTERNATIONAL ECONOMIC POLICY," n.d.).. But in terms of living standards of its population, China remains a poor country because the economy can produce approximately $ 18,000 for every person. The Us GDP is approximately $ 62,000. Furthermore, due to low living standards in China, companies pay low wages to their employees compared to the US. That's what makes products cheaper in China(Chan et al., 2011). Sometimes this entices foreign producers to subcontract some of their production jobs to China. And then they transport the finished products back to their countries.

China's economic growth is dependent on the exportation of low-cost equipment and machinery than the USA because government directs a substantial amount of its expenditure to the state-owned businesses to foster the export of those products ("ECONOMICS AND META-ECONOMICS," n.d.).. But in terms of profit margins, the state-owned businesses make less profit than private companies. For example, the returns are only 4% on the assets while the Private businesses return 13%. Therefore, these state-owned companies dominate their industries. Moreover, the Chinese government has constructed cities near these factories as a way of attracting the labor force, hence making real estate another contributor to its economy compared to the US.

In 2017, China was at position one as the largest exporter. It had exported products worth $ 2.2 trillion. On the other hand, the United States was ranked third with exports worth $ 1.6 trillion. As a result of this. China persuaded African countries to trade with them. The deal was that China will invest in its infrastructure in exchange for oil. The US went for Trans-Pacific trade agreements to balance the growth of China's power in trade ("Decomposition of GDP per capita relative to the USA, %. 2008," n.d.). Currently, China is still on purchasing power parity, while Us withdrew from it in 2017.

The USA is the largest importer of products. For instance, in 2017, it imported products worth $ 2.3 trillion. China came second importing products worth $ 1.7 trillion. Some of the goods imported by China are oil, organic chemicals, aluminum, copper, and plastics. These products come from Africa and parts of Latin America. Therefore China's consumption of commodities has necessitated growth in agriculture and mining all over the world. But the production of these commodities will lead to too much supply, thus reducing the prices.

Additionally, in terms of the agricultural industry, the United States is better than China due to favorable natural conditions. According to Economics And Meta-Economics ,though in China agricultural producers are about 70 times larger compared to that of the USA, the land that can be used for arable farming is little. On the other hand, a land of about 450 acres in the US is the same as farmland used by the almost 250-household community in China. Secondly, their agricultural objectives are different. For instance, in the US, the treasurable agricultural policy is on maintaining net revenue for small households living in the villages. The Chinese main policy is on food security. Therefore, China is not focusing much on the well-fare of its farmers but possibly on the acreage of land under cultivation. This means that there is a high purchasing power in China compared to the USA("ECONOMICS AND META-ECONOMICS," n.d.).. Numerous changes experienced in the agricultural sector in China has impacted positively on its economy. For example, an average farmer in shandong province can earn between $ 1, 450 to $ 9,000. This overtakes the overall inflation rate in China. It also includes harmonization of prices, fiscal decentralization, and development of modern markets.

What can be learned from China is that reforms in various sectors of the economy are vital in growth. Its reforms since 1978 has seen the country rise to be in the second position worlwide. For instance, the economic share of China increased from 1.5 percent to the current 15 percent in the world . Therefore, other countries in the world need to understand the historical path China took to elevate its economy, the challenges faced in the process, and how to make proper decisions to obtain similar results (Chan et al., 2011). This is a very important lesson for other countries to emulate to achieve economic success. The reforms employed by China include reduction of poverty among its population, creating a conducive business environment, and infrastructure.

Conclusion

In conclusion, though both countries have strong economies, the USA is leading. But with the rate at which China is coming up in terms of trade and infrastructure, it means that it can overtake the USA in the future because China is committed to creating an enabling business environment. For instance, it has progressed to global standards because of its business- friendliness.

References

Chan, P. S., Pollard, D., & Chuo, S. (2011). Corporate Ethics: China vs. USA. International Business & Economics Research Journal (IBER), 6(2). https://doi.org/10.19030/iber.v6i2.3340

Decomposition of GDP per capita relative to the USA, %. (2008). https://doi.org/10.1787/eco_surveys-deu-2008-graph1_6-en

Economic Organization of the United States for International Economic Policy. (n.d.). Foreign Economic Policy for the United States. https://doi.org/10.4159/harvard.9780674367333.c5

Economics And Meta-Economics. (N.D.). Valuing Nature?. https://doi.org/10.4324/9780203441220_chapter_2

Unemployment rates: total. (n.d.). https://doi.org/10.1787/173873044425

Youth unemployment rate and unemployment rate, United States regions, 2013: United States. (2014). HYPERLINK "https://doi.org/10.1787/9789264215009-graph195-en" https://doi.org/10.1787/9789264215009-graph195-en