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“Ballast Stone” May Be Wobbling

Mar 05, 2024
  • Zhang Monan

    Deputy Director of Institute of American and European Studies, CCIEE

Will economic and trade cooperation continue to be the “ballast stone” in China-U.S. relations? The answer isn’t clear.

In recent years, the United States has pursued a policy of containment and suppression of China as a strategic competitor, undermining the advancement of constructive bilateral economic and trade relations. In 2018, the Trump administration imposed high tariffs on Chinese imports, ranging from the high-tech and manufacturing sectors — machinery, electronics, medicine and automobiles — to raw materials, such as chemicals and metals, and even to consumer products such as clothing and food.

In the three years since President Joe Biden took office, his administration has largely maintained the high tariffs imposed by his predecessor — about $300 billion. At the same time, as the technology war between China and the United States intensifies, the Biden administration has adopted import bans, export controls, industrial subsidies and other non-tariff barriers to promote decoupling and “de-risking.” These practices have had a considerable impact on bilateral economic and trade relations, as seen on the following fronts:

Bilateral trade has experienced a significant decline. In 2023, it was $664.45 billion, a year-on-year decrease of 11.6 percent.  Specifically, China’s exports to the United States were $500.29 billion, a decrease of 13.1 percent, while its imports from the United States were $164.16 billion, down by 6.8 percent. Its trade surplus with the United States was $336.1 billion, a decrease of 16.8 percent year-on-year, while the U.S. trade deficit with China dropped to its lowest level in more than 10 years.

The trade interdependence of China and the United States has declined. From 2018 to 2022, the proportion of U.S. imports from China declined — from 21.2 percent to 18, 18.6, 17.8 and 16.5 percent. In 2023, it dropped to about 14 percent. In 2023 the proportion of U.S. imports from China fell by 7 percentage points from levels before 2018, when the trade war was launched. Specifically, industrial supplies and capital goods, including parts and components (except transportation equipment) — all of which were directly related to production — experienced a larger decline.

Both nations have experienced shifts in their trade with the rest of the world. In recent years, U.S. exports to China of semiconductors, liquefied natural gas and coal have declined significantly. As a result of the reshoring of U.S. manufacturing and the promotion of “nearshoring” and “friendshoring” of supply chains, some products have been imported from countries other than China. China has also diversified its import sources. Since 2023, its exports of intermediate and capital goods to ASEAN, Mexico and other economies have witnessed rapid growth, and its relations with emerging economies, such as ASEAN, have become closer in terms of industrial chains.

These developments underscore a significant reconfiguration of trade relations between China and the United States. Although tariffs have changed the size of bilateral trade, they have not fundamentally altered the two countries’ positions in the world trade landscape.

This year marks the 45th anniversary of the establishment of diplomatic relations between China and the United States. Trade between the two countries has surged by a factor of more than 200 in the past 45 years, and two-way investment stock now exceeds $260 billion. Bilateral economic and trade ties are deeply integrated, and the foundation of such relations remains solid. Even if the United States intends to reduce its dependence on China, the connections cannot be severed — in fact, it is practically impossible. China remains an important source of imports for the United States in the fields of consumer and industrial products, and the United States remains one of China’s important sources of high-end intermediate products. They are still each other’s most important trading partners.

Most industries in the United States this year are poised to enter a restocking cycle, and import demand for consumer electronics, furniture, building materials, food, agricultural products, textiles, clothing and other commodities are expected to expand. At the same time, China’s strategy of expanding domestic demand and advancing high-level opening-up will further unleash the potential of its ultra large market, which will help improve its economic and trade ties with the United States.

Driven by the momentum generated by the San Francisco meeting of Chinese and U.S. leaders, the two nations have recently engaged in more frequent communication and interaction in various fields and at all levels. Not long ago, the China-U.S. Economic Working Group held its third meeting. These activities play a positive role in the recovery of bilateral economic and trade relations. At present, China-U.S. relations stand at a new historical juncture. Cooperation remains the defining trend, but it is essential to acknowledge contradictions and differences. The key lies in “how.” Both sides need to listen to each other and work together to find solutions to their differences. They need to reach consensus on major issues of principle and, more than anything else, to translate the consensus into tangible action.

First, the top priority is to repeal the extra tariffs imposed on Chinese goods. Recently, Donald Trump claimed that he would impose tariffs of 60 percent or higher on Chinese imports if he were he to win a second term in office. If this turns into reality, it will undoubtedly be a disaster for bilateral economic and trade relations. High tariffs not only seriously disturb bilateral economic and trade relations but also undermine the competitiveness of the two countries’ products. It is imperative that the U.S. government heed the voices of all walks of life in China and the United States, respect the rulings of the World Trade Organization expert panel and remove the added tariffs on Chinese imports as soon as possible.

Second, both nations need to transcend the framework of great power competition and build a new relationship characterized by both competition and cooperation. History has repeatedly proved that the two countries have an internal impulse to form interdependent economic and trade ties, and that their successes are shared opportunities. China’s ongoing implementation of innovation-driven development strategies, as well as industrial upgrading, has spurred the growth of high-tech exports from many countries, including the United States. In the past 10 years, its imports of high-tech intermediate goods have grown at an average annual rate of more than 15 percent. Consequently the Chinese market has become fertile ground for U.S. multinational companies to drive global innovation. The two nations, with their respective strengths, can complement each other in emerging fields, such as semiconductors, artificial intelligence and new-energy vehicles. In fact, strengthening technological cooperation is in line with public opinion and the trends of the times. Export controls and investment restrictions in fields such as chips, semiconductors and artificial intelligence, as well as sanctions on entities, will do nothing to help the United States enhance its industrial competitiveness; instead, they threaten to become a lose-lose scenario for both nations.

Finally, as major countries on the world stage, China and the United States need to shoulder their responsibilities and work together to address global challenges. The future of the world hinges on their cooperation. They need to play a leadership role in areas such as sustainable development, environmental protection and energy innovation, as well as reform of the multilateral trading system and in meeting challenges from emerging technologies led by artificial intelligence. And they need to strengthen policy coordination and work in partnership to shape more inclusive rules and systems for global economic and trade governance.

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