Since last year, we have seen continued escalation of trade frictions between the United States and China. There have been more than a dozen rounds of negotiations but, regrettably, no agreement has been reached.
When the U.S. started to ramp up tariffs on Chinese goods, it cited trade imbalances as the reason. But arguments that the U.S. is losing in trade with China because of a trade deficit are disputed by mainstream U.S. economists.
The U.S. trade deficit with the rest of the world is caused by the U.S. economic structure and the international division of labor. In fact, the U.S. trade deficit has been shifting among its trade partners and now mainly resides with China. This is a result of market choices based on the competitive advantages of each country’s industries.
In the 40 years since the establishment of diplomatic relations between China and the U.S., the two economies have become deeply interconnected. Despite the U.S. trade deficit with China, 2017 sales revenue and profits of U.S.-funded enterprises in China exceeded $700 billion and $50 billion respectively.
Consider also that the U.S. has long imposed strict export controls on China. But the Carnegie Endowment for International Peace in April 2017 found the U.S. trade deficit with China would have been reduced by 35% if the export controls on China had been reduced to the level imposed on France.
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Sino-U.S. economic and trade cooperation is a win-win relationship, not a zero-sum game. A U.S.-China Business Council study shows trade with China saves every American family an average of $850 annually. In 2015, joint ventures of the top three U.S. automakers in China made a combined profit of $7.44 billion. With China focusing more on mid-range and low-end production of the manufacturing chain, the U.S. has been able to concentrate on developing high-end manufacturing and modern service industries.
In late June President Xi Jinping and President Trump agreed in Osaka, Japan, to resume trade negotiations on the basis of equality and mutual benefit, and that the U.S. would not impose new tariffs on imported goods from China. But in early August, the U.S. unilaterally announced 10% tariffs on another $300 billion worth of Chinese goods. It left China with no other option than to take countermeasures.
China is sincere in its desire to resolve differences through negotiations. But it is also firm in its determination to fight back against unreasonable demands. No one wins in a trade war. Ramping up tariffs will not solve any problems. It hurts U.S. importers, consumers, automakers and other industries. Continued trade frictions put more downward pressure on the global economy. For China, the trade frictions may have caused short-term economic pains. But its long-term momentum of growth has not, and will not, change.
Every 17 minutes a flight travels between China and the United States. U.S. products such as Illinois’ soybeans, Iowa’s beef and Michigan’s cars have long entered the Chinese market. As the world’s two largest economies, both the United States and China stand to gain from cooperation and lose from confrontation.
China and the U.S. share broad common interests and important responsibilities in promoting sustainable global development, addressing climate change, enhancing energy security, preventing major communicable diseases and combating international terrorism. It is important for China and the U.S. to meet each other halfway, treat each other as equals and with respect, pursue win-win cooperation, and adopt a rational and practical approach in solving problems. This is the only way to bring real benefits to the people of our two countries and the world at large.