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China-US Trade and Investment Expected to Grow

Nov 10 , 2012
  • He Weiwen

    Senior Fellow, Center for China and Globalization

Steady Growth will Persist

China-US trade grew steadily during the first term of Obama’s presidency. According to China Customs statistics, China-US trade reached $ 396.09 bn, 9.1% up from over a year ago, 2.8 percent higher than China’s global trade growth rate. China’s exports to the US reached $289.32 bn, 9.5% up from over a year ago, 1.7 percentage points higher than its global export growth of 7.8%. US exports to China also grew by 8.0% during the same period, to $106.76 bn, 3.4 percentage points higher than China’s total import growth of 4.6%. According to the US Department of Commerce, US-China trade hit $2731.20 billion during the first 8 months of 2012, 6.7% up from over a year ago, 1.7 percentage points higher than its total global trade growth rate. US exports to China during this period reached $70.00 bn, 5.9% up; and imports from China grew by 6.9%, to $203.12bn. 0.3 and 2.2 percentage points higher than the US’ global export and import respectively. 

This set of simple data shows that both China and the US have gained a share of each other’s markets in the difficult world economic environment since the beginning of this year. If this trend persists, President Obama will most likely realize his goal of doubling exports by 2014 in the Chinese market.

Cross-border investment has also witnessed significant growth, especially China’s investment in the US. According to a report by the New-York based Rodium Group, China’s investment in the US hit $6.3 bn in the first 9 months of 2012, almost doubling that of a year ago. US actual investment in China reached $2.30 bn during the first 10 months of 2012, 0.63% down from a year ago, according to China’s MOFCOM data. However, it performed better than China’s total FDI inflows (down 3.76%) and especially better than that from the EU (down 6.78%).

All the political and economic frictions, including all the attacks from both Barack Obama and Mitt Romney have failed to change this trend. It is the economic complimentary fundamentals, not Washington politicians’ remarks that lie behind this momentum.

The next four years will be hard for the world economy, with the Euro Debt crisis evolving further before finally retreating. The US economy will most likely continue its current slow recovery, with the jobless rate dropping to 6% in 2015. China, at the same time, will fundamentally restructure its economy in the last 3 years of the 12th five-year plan period. Both countries will need more access to each other’s market. In sectors such as alternate energy, shale gas, smart grid, IT and electronics, automotives, environment, tourism, logistics and finance, further growth in two-way trade and cross-border investment can be expected. Total two way trade volume will probably exceed $700 bn by 2016. US direct investment will stay at around $4-5 billion per annum in the next 4 years, while China’s direct investment will maintain a robust growth, hitting $15 billion in the year of 2016.


 New Protectionism, Strategic Distrust and System Disaccord will Continue

A distinct feature of Obama’s trade policy has been new protectionism. He approved a special duty on tires from China during his first year in office. In the election year of 2012, the Obama administration stepped up anti-dumping and counter-veiling frictions against China considerably, covering solar cells, auto parts among other sectors. Unlike trade remedy cases in the past when remedies came after two consecutive years of an import quantity surge and price falls from China, the actions came merely because of a surge in the quantity imports.

For instance, US imports of auto parts from China increased by 131.7% from 2005-2011, or from $3.77 bn to $8.77 bn, a net increase of $5.0 bn. However, the US exports of auto parts to China increased by 556.4%, or from $1.01 to $6.63 – a net increase of $5.6 bn. And the US auto parts jobs in the US increased from 721,700 in July, 2011 to 789,500 in July, 2012. Nonetheless, China was still accused because of the high jobless rate in the auto sector. It can be expected that, as long as the high jobless rate in the manufacturing sector persists, which looks very likely for at least the next 2 years, the quantitative protection against China will continue. With Chinese high-end industries growing during the next four years, there might be more cases of head-on conflicts with the American computers and Electronics, telecom equipment, flexible manufacturing sectors during the second term of Obama.

President Obama issued an executive order in late September, blocking Chinese Sany’s wind farm acquisition in Oregon for national security reasons, although the Navy had already given a green light and there were German and Danish wind farms around. It was the first time that a US president blocked a foreign acquisition in 20 years.  Ten days later, the House Intelligence Committee issued a report blocking Huawei and ZTE’s access to the US market, also for national security reasons. Contrarily, Softbank of Japan acquired Sprint almost at the same time without meeting a single word of opposition in the US. Those two cases vividly highlight the profound US strategic distrust towards China, regarding the latter as a real or potential adversary.

Obama trade policy with China has also advanced from individual cases to an overall strategic position, regarding China as pursuing “ state capitalism,” “skirting the trade rules” and thus “challenging the world trade system”. The US blames China for government control and SOE monopoly, and various subsidies on their own industries, thus creating an unfair competitive advantage against the US companies either in the US and the world markets. It can be easily envisaged that this trend will only gain momentum during Obama’s second term.


Manufacturing Returns to America: conflict or complimentary?

Increasing evidence has shown a slight return of manufacturing back to the US during the first Obama term, especially in the past two years.  Obama’s second term will only see this trend continue. China, on the other hand, has shown repeated cases of moving out. While the vigorous growth of shale oil production and energy cost keeps going down, and the cost in China keeps rising, investments based primarily on cost considerations may partially shift from China back to the US. However, those based on market considerations will follow a different path. Ford Motors, for example, announced earlier this year a shift back of its auto parts plant from China to the US, creating 2,000 jobs. Meanwhile, it also announced a master plan to build 2 assembling plants in China, with a goal of doubling its China capacity by the year of 2017. On China’s part, the return of manufacturing has offered good chances for direct investment in the US, creating jobs locally, and global expansion of the parent company.

For the next four years, Obama will step up his efforts of repatriating US manufacturing which will result in various conflicts with China on the one hand, and create numerous chances for China on the other.


Teamwork for a Win-Win Situation

It will not be in the interests of China nor of the US, if the two-way trade and investment falls simply due to business frictions. A more practical approach is a careful, sector-by-sector study of complimentary factors for both nations, to find out workable action plans for win-win projects in both trade and cross-border investment.

The American Chamber of Commerce in China white paper 2012 showed that 68% of their member companies surveyed had a profitability in China higher or equal to that in the rest of the world, and 84% of the respondents put their primary goal in investment in China as selling to the Chinese local markets, or importing from the US, or selling to China’s neighbor markets, as compared to 77% in 2011. It shows that the US companies need expanding business in the enormous and fast growing China market, and the US economic recovery needs Chinese investments. For China, the huge innovation sources and cutting edge technologies from the US fit her industrial restructuring and advance well. These complimentary fundamentals constitute the solid foundation of the two-way trade and investment, and will ultimately set the general scenario of China-US business relations during Obama’s second term.


He Weiwen is co-director, China-US/EU Study Center, China Association of International Trade.

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