Case Study:
Your firm designs, manufactures, and markets children’s toys for sale in the United States. Almost 90 percent of your production is done in the People’s Republic of China. During the 1990s, U.S. relations with China improved. Even though there were many disagreements between the two countries, the United States granted normal trade status to China and continued to support China’s application for membership in the WTO. Your firm invested heavily in China during that time. You have developed close ties to Chinese suppliers and have come to depend greatly on inexpensive Chinese labor and the lower costs of doing business there. You are now concerned about increasing political tension between China and the United States over a variety of issues. The U.S. president has criticized the Chinese government, arguing that it has supported communist North Korea and sold missile technology to Middle Eastern countries. Most worrisome is China’s claim to Taiwan under its “One China” reunification policy. China continues to aim more missiles at Taiwan, accusing the United States of fostering “independence” there. The United States indicates that it may sell the newest navy destroyers and AEGIS radar systems to Taiwan. When China warns that sales of military equipment to Taiwan could lead to “serious danger,” the president publicly reaffirms the importance of trade with China.
Q1. Describe the impact that a trade dispute would have on your firm.
Q2. Describe the impact on your firm if China were to lose its MFN trading status.
Q3. What strategic actions might you consider to reduce your firm’s exposure to political risk?
Q4. What are the current areas of agreement or disagreement between the United States and China, and how do you think they will affect future trade relations between the two countries?
Q5. In the wake of a communist victory in the late 1940s, the nationalist Chinese fled mainland China for the security of the island of Formosa. Today the island is known as Taiwan and has its own independent, multiparty government and popularly elected president. It is industrialized and is considered one of the Asian economic “Tigers.” One of the pillars of American foreign policy during the Cold War was that the island of Taiwan should remain independent. But political and economic realities have caused the United States to remain pragmatic in its relationships with both the government of the People’s Republic of China and Taiwan over the last 30 years. Taiwan joined the WTO under the name “Chinese Taipei,” encompassing the “separate customs territory of Taiwan, Penghu, Kinmen, and Matsu.” Examine the history of Taiwan and its relationship to China. What do you think of U.S. policies toward the region? While both mainland China and Taiwan are “Chinese,” doing business in Taiwan differs greatly from doing business in China. Describe that difference. How do business opportunities differ on the mainland versus the island? What do you think of the prospects for reunification, and what would be the impact on firms operating there?
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.