- Patrick Mochnal, AIT
Outsourcing to China is Depleting the United States GDP
For much of the 21st century, the United States economy has suffered from a trade war with China. One way in which the economy can be measured is through the gross domestic product, GDP. The GDP of a country rises with an increase in business investment onshores and with exports from said country to other nations. On the other hand, GDP falls as imports from other countries to said country increase. Therefore, when companies decide to outsource jobs and factories to China, it directly lowers the GDP due to lower business investment, lower exports, and increased imports. So why do American companies outsource if they know they are hurting the United States economy?
American based companies outsourcing to China do not care about GDP, but rather personal profit. Companies such as Apple own factories in China because their expenses are less when producing a good than they would be in the United States. According to Henry Blodget of businessinsider.com, the cost of making one iPhone in China is $8, whereas the cost would be about $73 in the United States. Due to these low expenses, companies like Apple do not want to build factories in the United States as their profit would instantly decrease.
The Chinese economy is also profiting from American outsourcing. When American companies build factories in China, they are increasing business investment in China, raising the Chinese GDP. Additionally, the goods made in said factories can be exported from China, boosting the Chinese GDP. Those same goods must be imported by the American economy, decreasing the American GDP.
To counter this loss of GDP, the Trump administration has placed high tariffs on Chinese goods shipping to the United States. In early December, President Trump met with President Xi Jinping, the core leader of China, to discuss trade relations. Mr. Trump agreed to a deal with Xi Jinping wherein the United States would lessen tariffs on China and China would purchase American agriculture and industrial and energy products.
While this may only be a temporary fix to a colossal trade war, it shows prospect for what the future relations between China and the United States could be. This positive relationship will hopefully be solidified by a long term deal between President Trump and Xi Jinping where both countries will profit. Until then, Americans can only hope that the United States GDP will not be suppressed by unbalanced trade for much longer.
BBC News (2018, December 2). US-China Trade War: Deal Agreed to Suspend New Trade
Tariffs. Retrieved from https://www.bbc.com/news/world-latin-america-46413196
Blodget, H. (2012, January 22). This Article Explains Why Apple Makes iPhones In China And
Why The US Is Screwed. Retrieved from https://www.businessinsider.com/you-simply-must-read-this-article-that-explains-why-apple-makes-iphones-in-china-and-why-the-us-is-screwed-2012-1