Introduction
China’s economic and political influence is becoming apparent and poses new challenges for global companies associated with a possible confrontation between the US and China. This paper will analyze the article China’s Rise, World Order, and the Implications for International Business, which describes the current characteristics of the economies of China and the United States and the potential risks of conflicts and emerging trade barriers.
Article Summary
Grosse et al. (2021) note the growing trade and political rivalry between the US and China. The authors do not exclude the emergence of conflicts between the two countries in the future. However, they also believe that China and the US are interested in maintaining an open economic and trade order. The article provides evidence that even with a change in the global distribution of power, globalization will not decrease. Eventually, the authors suggest that multinational companies focus not on developing global supply chains at the lowest cost but on creating strategies to manage the risks associated with policy changes.
The World Bank Underestimates the Chinese Economy
The growing power of the Chinese economy confirms that according to the Big Mac index, the yuan purchasing power is underestimated. The price of a Big Mac is 21.7 yuan in China and $5.71 in the US, so 3.8 yuan is enough to equate to a purchasing power of $1 (How Big China’s Economy, 2022). Based on this, it is possible to conclude that international financial institutions underestimate the performance of the Chinese economy.
Besides, China is a formidable trading partner for almost all countries, with an open trade policy in Europe, Asia, and the Americas. These countries are likely to experience the negative consequences of the trade confrontation between China and the United States, such as barriers and more complex transportation. Countries whose production facilities are located in China, as well as global companies that buy raw materials from China, have been impacted more than others.
Conclusion
With China’s booming economy and possible escalation of conflicts between China and the United States, analysts advise international trading companies to be prepared for emerging trade barriers and assess potential political risks in advance. At the same time, it is worth remembering that China, like the United States, is interested in an open economic and trade policy. Therefore, both countries will continue to adhere to globalization to offer public goods that will stimulate the growth of international trade and investment.
References
Grosse, R., Gamso, J. & Nelson, R.C. (2021). China’s rise, world order, and the implications for international business. Management International Review, 61, 1–26.
How big is China’s economy? Let the Big Mac decide. (2022). The Economist. Web.