How China's Economy Influences the US

These days, even casual followers of financial news have noticed a rise in the volume of stories about China. There's good reason for the coverage, says Robert Mittelstaedt, dean of Arizona State University's W.P. Carey School of Business.

"China is the world's second-largest economy next to our own. They are a huge trading partner, and our two economies are incredibly intertwined," Mittelstaedt says.

On balance, we still import more from China than we export, according to U.S. government data, which shows a relatively unchanged trade deficit with China. But even as our appetite for imports continues, exports have grown by 50% since 2008, according to The Washington Post. Increasingly, exports will be an important part of the U.S. economy, especially given how vocal the Obama administration has been about its commitment to boosting American exports in the years to come.

Given those realities, it isn't surprising that many in the U.S. often ask what the latest news out of China means for the U.S. economy. But individual stories, such as the recent news that China set a new, lower target growth rate of 7.5%, tend to obscure a larger, more important trend, Mittelstaedt says.

"The big impact on us is that China's economy is maturing," Mittelstaedt says. "I'm not sure they have any more ability than us to set their growth rate, but the idea that they're looking at less growth shouldn't be surprising."

China in Transition

What's happening is that China is transitioning to a different kind of economy. "The story behind the story of a lower-than-expected growth rate is that China's economy is in a broader economic transformation," says Michael Stanat, a marketing manager with SIS International Research who splits his time between Shanghai and New York.

According to Mittelstaedt, the shift means China may be losing its place as the world's go-to supplier of cheap labor as it transitions away from manufacturing and exports.

But Stanat points out that it also means the Chinese middle class is growing and with it, China's economy is likely to be driven more by domestic consumption. It's a complex trend that impacts the U.S. economy in several ways.

While some pundits fret over a rising China, Keith Fitz-Gerald, the chief investment strategist for Money Morning, a Baltimore-based investment newsletter, takes the opposite view.

"A powerful China is coming, and we have two choices. Either we're at the table, or we're on the menu," says Fitz-Gerald, who adds that China isn't the enemy. "Good news from China is good news for the U.S.; bad news from the Chinese economy is bad news here."

According to Fitz-Gerald, the rise of China presents a dramatic opportunity for the U.S., especially if it can shift to an export-driven economy.

"Over the next decade, the world is going to have billions more people entering the middle class," Fitz-Gerald says. "The smart companies are already starting to cater to that market."

Mittelstaedt says companies such as McDonalds, Starbucks and Ford have been betting on a Chinese middle class they believe will be large and keen to spend its disposable income. Recently, The Gap announced plans to open 30 stores in China this year, no doubt eager to sell American fashions to a growing Chinese middle class.