Over the years, governments across the world have actively engaged in international trade with each other under different trade unions that govern the relationships developed between respective nations. Since the 1980s, international trade platforms were governed on an exclusive upholding of free trade basis. The U.S. pioneered the Preferential trading arrangement (PTA) strategy, which lies on mutual consents between trading partners. This strategy for trade opened an avenue for the respective nations to formulate special agreements on trade between each other (Krueger 2).
One of the main benefits of the development of trade agreements between specific nations is that their personal interests apply. For instance, some nations formulate trade agreements with the developing nations to acquire cheaper supply chains while helping with the financing of development projects within the developing nations. The North American Free Trade Agreement (NAFTA) is one of the Free Trade Agreements that took effect in the early 1990s, and it demonstrated the effects of developing FTAs. One of the advantages of joining FTAs is the resultant reduction of tariffs on different goods (Krueger 4).
During the 1990s, trade activities between the U.S., Mexico, and Canada intensified as each nation engaged in active international trade with the members of the NAFTA. During this period, free trade between the U.S. and Canada influenced Canada to maintain the U.S. as its most important trade partner, with Canada’s export share of the U.S. rising from 75% at the beginning of the decade to 86.5% toward the end of the 1990s (Krueger 8). This high level of trade partnership through the NAFTA led to an indirect blockade of trade between Canada and other economic giants like China. NAFTA intensified trade between its member states while influencing a significant decline in trade between its member and the rest of the world (Krueger 12).
According to a study conducted by Xiaming Liu, Chengang Wang, and Yingqi Wei, China’s trade activities have a direct link with the patterns of FDIs in its economy. The researchers conducted an empirical study by evaluating data collected from 19 of China’s close trade partners across the world. The data came from records dated from 1984 to 1998 (Liu, Wang and Wei 191). Econometric methods analyzed the data to create a correlation between foreign direct investment and trade in China. The findings from the research indicated that for every unit increase in China’s imports there is an equivalent increase in FDIs within China’s economy.
The growth in FDIs in China’s economy results in an increase in exports from China to the Home nations of the FDIs. The identified causal factors revealed that the growth of imports and exports in China is directly proportional with respect to China’s trade partners. This relationship means that the trade relations between China and Canada can be enhanced by increasing the level of imports and exports between the nations. Promoting foreign direct investments between the trade partners is also a viable approach to increase trade between them. These findings highlight the need for China and its potential trade partners to develop policies geared toward enticing their respective partners to invest in their economies (Liu, Wang and Wei 194).
Chinese people have developed a culture of using ethnic networks on bilateral trade to develop sanctions on illegal business activities. Co-ethnic networks in the international trade are a phenomenon that has taken the center stage in research work related to international trade. Ethnic networks, as demonstrated by the Chinese society, are key factors in the identification of the most feasible international business opportunities within different markets because they provide insight on the requirements of the society. Co-ethnic networks are instrumental in providing business entities, especially the foreign investors, with information that can promote bilateral trade (Rauch and Trindade 116).
Chinese networks are commonly used to enforce policies in different trade areas. Ethnic networks also play an important role in dictating the requirements of the members of the society, and business entities. For instance, the Chinese ethnic networks have been used by different business entities across the world to identify trading opportunities by acquiring information on the tastes and preferences of the people in the local Chinese markets. This information enabled international traders to attain parallelism between the products they supply to the Chinese market and the products on demand within the market (Rauch and Trindade 118).
Chinese networks are particularly influential in the enforcement of policies that deter the application of opportunistic behavior in trade. Chinese networks attain their efficiency in imposing sanctions through the delivery of market-related information to traders, helping traders to match the demands of the Chinese people, and providing referral programs to traders. Trade between Canada and China should focus on integrating the Chinese network with Canadian networks to attain the required cohesion between the two international markets (Rauch and Trindade 129).
The economy of China has experienced tremendous growth over the past two decades. Business activities like manufacturing and processing products for exportation to global markets as placed China at the top of the competition for global resources. The demand for energy has drastically increased in China over the past twenty years. Statistics reveals that twenty years ago China was the largest oil exporter in East Asia, but it currently holds the second position in the importation of oil (Crompton and Wu 195).
The high demand for energy in the nation is attributed to the fast trend in urbanization in the nation, an increase in motor vehicle acquisitions by Chinese citizens, and the growth in industrialization among many other economic factors. Electricity consumption in China is still on the rise, and this creates opportunities for oil exporters. The Chinese market also has opportunities for different nations to provide Industries with raw materials. The high demand for resources in China has direct impacts on the nation’s foreign policies (Garnaut and Song 276). It is quite evident that China has to keep altering its foreign policies to provide incentives to different global traders to supply the required commodities (Zweig and Jianhai 25).
Nations like Canada have the advantage of having an easy way negotiating with the Chinese government about trade policies. The strong need for resources and energy in China compels its government to develop policies that increase its chances of attaining the required commodities from China’s trade partners. Critics claim that the current state of the nation may lure the government into making policies that might end up haunting China’s economy in the future. There is clear evidence that the current business activities in the nation are building China’s economy at a fast rate, but the alterations in the foreign policies should be reviewed to avoid dire mistakes by the authorities (Zweig and Jianhai 32).
Works Cited
Crompton, Paul, and Yanrui Wu. “Energy consumption in China: past trends and future directions.” Energy Economics 27.1 (2005): 195-208. Print.
Garnaut, Ross, and Ligang Song. “China’s resources demand at the turning point.” The Turning Point in China’s Economic Development 1.1 (2006): 276-93. Print.
Krueger, Anne, O 1999, Trade Creation and Trade Diversion under NAFTA. Web.
Liu, Xiaming, Chengang Wang, and Yingqi Wei. “Causal links between foreign direct investment and trade in China.” China Economic Review 12.2 (2001): 190-202. Print.
Rauch, James E., and Vitor Trindade. “Ethnic Chinese networks in international trade.” Review of Economics and Statistics 84.1 (2002): 116-130. Print.
Zweig, David, and Bi Jianhai. “China’s global hunt for energy.” Foreign affairs 1.1 (2005): 25-38. Print.