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One: The World Economic Situation and Prospects (WESP) classifies all countries as either a developed economy, an economy in transition, or a developing economy (“Country classifications”, 2020). Although the World Trade Organization (WTO) does not specifically define whether countries are developed or developing, countries are able to declare themselves as such and members can challenge their declaration (“World Trade Organization “, n.d.). It is likely that the membership uses a combination of the country’s Gross Domestic Product (GDP), Gross National Income (GNI) and Human Development Index (HDI) as a gauge to determine a country’s status (Hill & Hult, 2018).

Although China’s GDP (6.567%) is higher than the U.S.’s (2.927%) as of 2018, it has been declining at an average rate of 0.452% since 2010 (“GDP growth (annual %) “, n.d.). Nevertheless, China may become the largest economy in the near future. Members of the WTO that are developing countries do not have as much influence on the world trading system as a developing country has (“World Trade Organization “, n.d.). For example, the World Trade Organization allows developed countries to treat developing countries more favorable than other members are able to (n.d.). This would certainly shake up the way trading is currently done as China would now have their hand in the game with other developing countries, thus making the market more competitive for developed countries.

In 1944, the U.S. dollar replaced the gold standard as a result of the Bretton Woods agreement (Amadeo, 2019a). Holding status as the standard global currency has major benefits as countries now hold it in reserves, instead of gold as they did prior to 1944. Amadeo estimates that nearly 580 billion dollars (65% of all dollars) are used outside of the U.S. (2019a). The dollar is one factor the determines the price of oil, thus, if the Chinese yuan becomes the global currency it could drive up oil prices (Amadeo, 2020).

References

Amadeo, K. (2019, December 13). Why the US Dollar Is the Global Currency. Retrieved from https://www.thebalance.com/world-currency-3305931

Amadeo, K. (2020, February 21). The Decline of the Dollar vs Collapse and How to Protect Yourself. Retrieved from https://www.thebalance.com/dollar-decline-or-dollar-collapse-3306090

Coates, B., & Luu, N. (2012). China’s emergence in global commodity markets. Economic Round-up. Retrieved from: https://treasury.gov.au/sites/default/files/2019-03/01-China-Commodity-demand.pdf

Country classifications. (2020). Retrieved March 12, 2020, from https://read.un-ilibrary.org/economic-and-social-development/world-economic-situation-and-prospects-2020_036ade46-en#page1

GDP growth (annual %) . (n.d.). Retrieved March 12, 2020, from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2018&locations=US&start=2010&view=chart&year=2010

World Trade Organization. (n.d.). Retrieved March 12, 2020, from https://www.wto.org/english/tratop_e/devel_e/d1who_e.htm

two: Since 1990, China’s GDP has gone from commanding 2% of the world trade to 16% in 2019. To understand what this means for the World Trade Organization (WTO), first we would need to consider what becoming the world’s largest economy would mean for China. Currently, China “enjoys” being considered a developing nation. Because of this, they are not held to as high of standards as first-world countries. By becoming the largest economy, China would likely not be able to claim “developing nation” status anymore and would have to adhere to certain environmental and labor-related regulations. It is exactly these lacks in regulations that has allowed China’s economy to grow so quickly and become the world’s powerhouse for industry and manufacturing. Consumers would likely see a price increase in products coming out of China, and demand for non-essential items would likely decrease. Companies may choose to move factories to countries that continue to have fewer standards, altering the current structure of world trade.

If China were to become the largest economy, then currency would likely be based off the Yen. If the value of the Yen were to fall, then the value of all currency would likely fall. This could be especially problematic if China were to experience a decrease in exports and an economic decline.

China is currently, and will likely continue to be, a massive consumer of global commodities. With a stronger economy, China could likely invest in even more raw materials from other countries. Increased building and infrastructure would see an increase in the need of steel and other metals, increased economic prosperity would further the demand for “exotic” food imported from other countries, and as the nation develops, so will the need for energy sources such as coal and oil (Tan, 2017).

References:

Tan, H. (2017, June 23). How China is changing the commodity trade. Retrieved from https://www.cnbc.com/2017/06/22/how-china-is-changing-the-commodity-trade.html

If Current Trends Continue, China May Emerge as the World’s Largest Economy by 2020. (n.d.). Retrieved from https://www.educationindex.com/essay/If-Current-Tr…

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