Comparison of the United States and China

Comparison of the United States and China

GDP and GDP growth rate

China has experienced more than double of GDP growth rate as compared with the United States. According to the World Bank statistics, China has hit GDP growth rate of approximately 10% by contrast to the United States with 2.3% growth rate which has enabled it to be the second largest growing economy in the world in 2014 (De Resende, 2014). Chinas GDP is $8.2 trillion, while that of the United States accounts to $16.2 trillion. However, the figures are based on nominal GDP which suggests that GDP is largely influenced by the exchange rates rather than by the real purchasing power of the currencies.

Exchange rate

The exchange rates between the U. S. dollar and Chinese yuan have varied narrowly. The current exchange rates stand at 6.24 yuans per 1 U.S. dollar, but the currency movements have been in favor of dollar for the last ten years (McKinnon & Schnabl, 2014). As a result, this situation has affected nominal GDP of China making it fall behind the United States rates. In 2010, the government of China ended the pegged exchange rate system against dollar for its export trade in order to lower the exchange rate (Ferguson & Schularick, 2011).

Inflation rate

In the last 10 years, the United States inflation rates are compared favorably to those of China. Both countries record relatively low rates during the period.

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Fig: United States Inflation Rates in the Last 10 Years.

2005	3.0	3.0	3.1	3.5	2.8	2.5	3.2	3.6	4.7	4.3	3.5	3.4	3.4
2006	4.0	3.6	3.4	3.5	4.2	4.3	4.1	3.8	2.1	1.3	2.0	2.5	3.2
2007	2.1	2.4	2.8	2.6	2.7	2.7	2.4	2.0	2.8	3.5	4.3	4.1	2.8
2008	4.3	4.0	4.0	3.9	4.2	5.0	5.6	5.4	4.9	3.7	1.1	0.1	3.8
2009	0.0	0.2	-0.4	-0.7	-1.3	-1.4	-2.1	-1.5	-1.3	-0.2	1.8	2.7	-0.4
2010	2.6	2.1	2.3	2.2	2.0	1.1	1.2	1.1	1.1	1.2	1.1	1.5	1.6
2011	1.6	2.1	2.7	3.2	3.6	3.6	3.6	3.8	3.9	3.5	3.4	3.0	3.2
2012	2.9	2.9	2.7	2.3	1.7	1.7	1.4	1.7	2.0	2.2	1.8	1.7	2.1
2013	1.6	2.0	1.5	1.1	1.4	1.8	2.0	1.5	1.2	1.0	1.2	1.5	1.5
2014	1.6	1.1	1.5	2.0	2.1	2.1	2.0	1.7	1.7	1.7	1.3	0.8	1.6

Source: US Inflation Calculator

According to the figures above, the United States inflation rates had an average index of 2.0. This indicates a relatively low rate over the discussed period with the lowest rates being experienced in the year 2009 when the country was running at deflation rates. However, the country experienced high inflation rates during the year 2006. China had similar averages with inflation rates falling as low as 0.8 % in February, 2015, although the rates were higher during the year 2007 - at over 2%. Generally, China inflation rates were lower to that of the United States.

Interest rate on short-term government debt

In the year 2014, the rate of interest on the short term government debt in the United States was approximately 0.12 (Eichengreen & Gupta, 2014). The rates have been relatively low falling to 0.11 for the last ten years. On the other hand, China has experienced higher short-term interest rates with the previous years rate standing at 4.98. This means that China is a better investment country for short term government securities as compared to the United States.

Unemployment rate

As for December 2014, the unemployment rate in the United States stood at 5.6%. The rates have fluctuated for the last 10 years rising as high as 10% in the year 2010. The unemployment rate is higher in teenage groups reaching 18% in January 2014. On average, the unemployment rate in the last ten years was higher for the African American populations compared to the white and Asian counterparts. Unemployment rates for China were lower in comparison with the United States. As for December 2014, the unemployment rate stood at 4.1 %.

Trade deficit

Trade deficit in China was lower as compared with the United States (De Resende, 2014). In 2014, the United States recorded 46,560 million of U.S. dollars in trade deficit which was the highest index in all the years under consideration. On average, the trade deficit has been accounted to $12758.46 million in the last 10 years. In January 2015, China had a trade surplus of $600.33. The surpluses averaged to $65.27 in all the analyzed years. However, the country witnessed a deficit of $31,971 in the year 2012.

Strengths and Weaknesses. Conclusions

Based on the above analysis, China is a better and growing economy than the United States in terms of the employment levels and GDP growth rates. This strength has enabled the country to enjoy higher balance of payments for its exports (Morrison, 2014). China also enjoys relatively higher surpluses in relation to its balance of payments as compared to the United States However, its major weakness lies in the undeveloped exchange rates system that may not be able to match relatively stable dollar. This may affect its value of exports. Consequently, the United States has stable exchange rate system and relatively large volume of GDP.

To conclude, the economies of the two countries are compared favorably to each other. Their future growth rates will depend on the decisions of the governments in regard to their foreign affairs and trade which will impact the volume and value of exports. In relation to the analysis, China is comparably better in many aspects in contrast with the United States. I have learnt that the GDP level of a country may not lead to the country experiencing full employment. The United States has a higher GDP level compared to China despite the fact that it has higher unemployment level. This suggests that Chinese populations have better access to job opportunities compared to the Americans.

China has a better macroeconomic climate for investments due to its relatively higher interest rates earned for investments in short term government securities. The country has a faster growing GDP which suggests that it has diverse investable opportunities compared to the United States. In both countries, inflation rate is relatively low which offers a favorable macroeconomic environment for investment purposes.

Another conclusion can be drawn from the comparison of the differences in trade deficits and surpluses among the two countries. China has better balance of payments as compared to the United States. Thus, China is a major exporter of goods and services against the United States. Also, it can be concluded that the exchange rate system of the two countries is a free exchange rate system determined by forces of demand and supply rather than the country policies which affected trade. The revision of the exchange rate regime by China enhanced its balance of payments and trade. A number of factors may have led to the adoption of free exchange rate systems. These may include desire to balance its net exports and imports as well as pressure from trading partners.

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