APEC Summit 2010: Sustaining Global Economic Recovery through Free Trade and Investment

8/9/2019 APEC Summit 2010: Sustaining Global Economic Recovery through Free Trade and Investment

1/9

A P E C 2010 S U M M ITSUSTAINING ECONOMIC RECOVERY

THROUGH FREE TRADE AND INV ESTMENT

EC6201 INTERNATIONAL ECONOMICSGROUP PROJECT

CEDRIC LIM | JANEL CHUA | PEK YANG XUAN

INTRODUCTION TO THE US ECONOMY

Before the meltdown of 2008, the historically powerful US economy wascharacterized by low unemployment and inflation , steady economy growth, and rapidtechnological advancements. In 2009, its nominal Gross Domestic Product (GDP)exceeded USD$14.2 trillion, by far the largest economy of any single nation in theworld1. Ranked 2nd in the world by the Global Competitiveness Report 2009- 2010, itclearly retains its international competitive edge despite a weakening market andshaky post-crisis recovery. Here is a simple summary of the economy:

Descriptor The U.S. Economy Remarks

Type of Economy Free Market US is great proponent of free

trade; major reason inreluctance to engage inprotectionism

Currency United States Dollar (USD) Currency in which mostforeign reserves are held; thisgives the US significant powerover those economies.

Milestones Great Depression (1930s)9/ 11 (2001)Iraq War (2003)Oil prices hike (2005- 2008)Sub-prime mortgage crisis

(2008)Financial stimulus package(2009)

The most significant event inrecent years being the crisisof 2007 2010, where adomestic liquidity shortfalltriggered a global economic

recession.

GDP USD$14.266 trillion (2009) Largest in the world; fuelledby unsustainable borrowing

Consumer PriceIndex(where Years1982-4 = 100)

216 Fears of inflation have provedthus far unnecessary asprices remain low.

Unemployment 9.7% (2010) A problem that must be solvedto cut spending onunemployment benefits .

Largest TradingPartner

Canada (USD$39.6b) (2009) China is fast catching up, aswe show in our analysis later.

1 The countries within the European Union had a combined GDP of$14.5 trillion.


2/9


3/9

A P E C 2 0 1 0 S U M M I TSUSTAINING ECONOMIC RECOV ERY


EC 6 2 0 1 IN T E R N A T ION A L EC O NO M I C SG R O UP P R OJ E C T

C E DR IC L IM | J A N EL CHUA | PE K YA NG X UA N

PUBLI C DEBT

Debt is expected to rise from 45% of GDP in 2008 to 85% in 2019, representing the greatestpublic debtthe US has faced in all its peacetime history. The healthcare reform is expected to

further fuel worriesthatin orderto combatthis debt,the US will tryto inflate itsway out ofit

on top of currentcommitmentsto several other programssuch as Social Security and Medicare.

CU RRENT ACCOUNT

Currently standing at about US$115billion, the current account deficit is

about3.2% of GDP. Itisup from $102

billion ofthe third quarter, or 2.9% of

GDP. Main contributing factorsto this

deficiton international trade are good

importsincreasing more than exports

(reflecting a continual tendency for

local consumers to demand goods

produced abroad ratherthan those by

local producers), services exports

increasing more than imports, and

income payments still posting asurplus. The annual deficits stand at

$420 billion in 2009, down from$706 billion the year before2.

Netfinancial inflows decreased from $85.7 billion in Q3 to $45.7 billion in Q43.

STRATEGIES TO SUSTAIN ECONOMIC RECOVERY

y Force China to appreciate

o Political pressure + trade war

y Bonds

The global economic recession has come and gone and nowmost countries have begun torecover from its aftereffects; the United States is no exception. From our research above, we

know that the U.S. is the largest economy and that it was badly hit during the recession and

PresidentObama conceived ofthe stimulus package in orderto help the nation and its citizens.

2 However,thisis projected to increase asthe Obama administration plansits financial package.3Inflows (i.e. US assets from abroad) dropped from increasing$269 billion (Q3) to an increase $99 billionin Q4. Outflowsincreased $145 billion this quarter after Q3sincrease of$343 billion.

FIGU RE 2. US RE CENT UNEMPL OY MENT RAT E(B URE AU OFLAB OR STATIST ICS , APR 2010)


4/9


5/9


6/9

A P E C 2 0 1 0 S U M M I TSUSTAINING ECONOMIC RECOV ERY


EC 6 2 0 1 IN T E R N A T ION A L EC O NO M I C SG R O UP P R OJ E C T

C E DR IC L IM | J A N EL CHUA | PE K YA NG X UA N

RE ASONS

30 years of diplomatic relations between China and the UShas developed into a mature workingrelationship between the two economic powerhouses of the world. With the backdrop ofthe

rippling effects ofthe current international financial crisis, aswell as increasingly outstanding

challenges (such asthe Grecian crisis) worldwide, furtherimprovementof China-US relationsis

especially important. These are good reasons for China and the US to pull together in times of

trouble in order to coordinate their respective approaches for promoting the recovery of the

world economy.

As China is currentlythe fastestgrowing economy, and amongstthe three largestin the world

(asseen in Figure 1 and 2 below),itsrapidly developingindustries are a favorable well-spring

forinvestorsto make profitable investmentsin.

Figure 1: Graph of countrieswiththe highestgrowth rate.

Source: Data from USDA The International Macroeconomic Data Sethttp://www .ers.usda.gov/Data/Macroeconomics/

Countries with highest growth Real 2000 GDP($billions)

Countries with the largest economies in 2007 Real 2000 GDP($billions)


7/9





Fi ure 2:Graph of countries with the lar est economies.Source: Data from USDA The International Macroeconomic Data Set http://www.ers.usda. ov/Data/Macroeconomics/

Additionall amon st the four participant countries China is the USs lar est export and importpartner as we can see from the table below.

T

tal in T

tal inBilli ns Billi ns

C

untry Name

f U.S. $

f U.S. $

(2009) (2010)

Canada 39.64 38.27

China 34.86 32.07

Mexic 28.82 27.62

Japan 14.47 13.02

Federal Republic f Germany 10.96 8.80

United Kingd m 7.69 7.00

K rea, S uth 6.20 5.80

France 5.19 4.78

Taiwan 4.64 4.57

Brazil 4.35 4.20

The values iven are for Imports and Exports added to ether for the month of Januar 2010.These Countries represent 65.4 % of U.S. Imports and 61.53% of U.S. Exports in oods.

Besides the socioeconomic benefits that both countries will enjo from a successful partnershipone can also examine the socio-cultural aspect of the matter and find that the peacefulcoexistence of these two countries will create new historical possibilities for human societ . It


8/9


9/9





APPENDIX 1: DATA TABLE

This table taken from the IMF website shows the current standin s of the countries in theworld now adjusted for costs of livin in each of the countries. The United States and itsproposed partner China stand at positions 2 and 3 respectivel .

Documents

APEC Summit 2010: Sustaining Global Economic Recovery through Free Trade and Investment