From June 8-9, the China-U.S. summit in Sunnylands, California attracted world attention because President Xi and President Obama decided to exchange in-depth views on global, regional and bilateral issues such as climate change, cyber-security, Sino-U.S. military ties, etc. The two leaders also touched the bilateral economic and trade ties, which have long been considered an anchor of a stable and strong Sino-U.S. relationship.
The U.S. and China are the world’s largest and second largest economies. The past four decades witnessed a great explosion in the Sino-U.S. economic and trade nexus. According to the General Administration of Customs of China, the bilateral trade volume reached 484.7 billion dollars in 2012, compared with 2.45 billion in 1979. China is currently the second largest trading partner of the U.S., next to Canada; and the U.S. is China’s second largest trading partner, right after the European Union. The U.S. is the largest importer of Chinese goods, and China has become the third largest export market of U.S. merchandise. With regards to foreign direct investment (FDI), it began from zero and has since developed rapidly. The U.S., which has invested over 70 billion dollars in China, is a major source of foreign investment. Though Chinese investment in U.S. started much later, it is experiencing a great leap forward in the first decade of the new millennium. In addition, China is the largest foreign holder of U.S. Treasury Bonds, totaling nearly 1.25 trillion dollars, which accounts for 36 percent of Chinese foreign reserves. The increasingly intertwined economic and trade connections have benefited both nations by providing cheaper goods to American people and filling the huge gap between the revenue and spending of U.S. government, and by supporting the rapid growth of an export-oriented Chinese economy and reducing unemployment, which is a major unstable factor in China.
The financial tsunami is changing the so-called “balance of financial terror” between the two countries. As representatives of the two sides of an unbalanced global economy, China and U.S. have made efforts to readjust their models of economic development since the crisis: China is moving toward a more consumption-driven economy, while the U.S. is focusing on financial de-leveraging, and the revival of its manufacturing industry. The economic rebalancing has seen some positive results to date, but much more has to be done in the coming days.
As the economic and trade links are closely bundled and largely dependent, it’s normal that frictions and disputes have become more frequent on an annual basis, and sometimes from the perspective of the third party, the two sides seem to be on the verge of a potential “trade war.” There should also be alarm that just as in the political, security and military fields, the trust deficit in economic and trade fields is growing fast and is spreading across many walks of life in both countries. Against the backdrop of a Chinese economic slowdown and a slack recovery in the U.S., the perception that China and U.S. are doomed to be strategic competitors in the economic and trade fields seems to be quite popular. On the U.S. side, some multinational companies are complaining of the overprotection of the Chinese market and the wide violation of intellectual property rights, and more recently the so-called “cyber theft” of U.S. advanced technologies; on the Chinese side, Chinese companies are not only worrying about their access to the U.S. market, but also feel high pressure from the U.S. government on the revaluation of Chinese currency RMB, and trade remedy measures, and special safeguard measures against Chinese exports.
But, if one looks at a bigger picture of the future, one may conclude that the window of opportunity is open to China and the U.S. to forge a new type of economic and trade relationship. A recent report sponsored by the China-U.S. Exchange Foundation predicts that China and the U.S. will become each other’s largest trading partners by 2022. This is an ambitious blueprint that should be targeted by both sides in the foreseeable future, because China and U.S. have a great potential to achieve this goal. For example, possessing huge foreign reserves and abundant dollars, China is able to multiply its FDI across America. Left far behind by its investment in the EU, Chinese FDI in the U.S. is only 9.4 billion dollars, as of 2012. While in the current account of trade, China enjoys an annul surplus of about 220 billion dollars from the U.S., and it may absorb an increasing amount of American goods to help achieve the U.S. goal of doubling its exports by 2015.
To forge a new type of economic and trade relationship isn’t so easy. It requires new thinking, new fields of cooperation and new approaches of cooperation. First, as the two largest economies in the world, both sides should reach a consensus that more extensive, deepened and balanced ties are beneficial not only to China and the U.S., but also to the Asia-Pacific region, and more broadly to the global economy; secondly, both sides should promise that bilateral cooperation should be based on equality and non-discrimination, and that protectionism in trade and investment is against the interest of both nations, that economic frictions and disputes should not be politicized and be solved by bilateral and multilateral mechanisms; thirdly, a comprehensive framework that will greatly promote market access, the protection of intellectual property rights and other issues that both sides are concerned with is highly needed for the bilateral trade, investment and technology cooperation.
In one month, the fifth round of the China-U.S. Strategic and Economic Dialogue (S&ED) is scheduled in Washington, D.C. Both sides are set to discuss not only the strategic and security issues, but also bilateral economic and trade issues. As a major pillar of the initiated new type of big country relationship, a new type of economic and trade relationship is necessary and vital to the next decade of China-U.S. relationship, and to a greater extent, to the regional economy and global economy.
Qian Liwei is Associate Research Fellow with China Institutes of Contemporary International Relations