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Renewed Rational Dialogue to Address Trade Frictions

Jun 24, 2019
  • Xu Hongcai

    Deputy Director, Economic Policy Commission

China-US trade frictions have now spilled over to many other fields such as science, technology, and culture. Some people have even dangerously labelled these tensions as a “clash of civilization” or even a new Cold War, creating a horrifying atmosphere.

In the past two years, populism, protectionism unilateralism have hindered economic globalization and threatened the multilateral trade regime. As a matter of fact, imposing additional tariffs on Chinese exports has caused trade imbalances of a larger scale. According to the US Department of Commerce, the trade deficit with China increased from $370 billion in 2017 to $420 billion in 2018. Obviously, the tariff therapy did not work. These measures reduced not only Chinese exports to the US but also American exports to China. As Chinese investments in the US decrease, the growth of American investments in China also slows down. Meanwhile, trade frictions have hurt global investors’ confidence as they suffer huge losses.

The downward pressure on the world economy has apparently increased. On June 4, the World Bank published in its Global Economic Prospects a report titled “Heightened Tensions, Subdued Investment.” According to the report, global economic momentum is weak and faces significant risks, while international trade and investment are weaker than forecasted at the beginning of this year. Recently, IMF Managing Director Christine Lagarde described China-US tension as the “main threat to the world economy.” Undoubtedly a huge risk threatening the world economy is the escalation of China-US trade frictions. American moves have disrupted the global value chain and supply chain, adversely affecting Asia and the EU with trade contractions. Even American suppliers find it hard to escape the ripple effects.

China is the world’s largest developing country and the US is the largest developed country. Their trade and economic relations are important for their own stability, and the stability of the global economic system. Since China’s entry into the WTO, the two countries have developed a mutually beneficial relationship of structural synergy and converging interests, on the basis of comparative advantages and market choices. Their close cooperation and economic complementarity have increased jobs, optimized the structure of their respective economies, and increased the efficiency of the division of labor for global industry.

Experience has shown that cooperation serves the interests of both sides while conflict helps no one. At present, both sides urgently need to calm down, come back to the negotiating table, and gradually address trade imbalances through strengthened structural reforms and greater openness. In this regard, I would like to propose the following:

First, the US should regard China as an equal partner instead of a strategic competitor. This seems to be very difficult for the US. In a recent speech, Singaporean Prime Minister Lee Hsien Loong expressed concern over the increasing tension between China and the US and its negative influence on world peace and prosperity. In a serious tone, he pointed out that it was impossible for the US to contain China’s rise and that China would in the end become a responsible and restrained force. In light of this, the US should make adaptive adjustments, while the two countries should enhance strategic mutual trust, defuse ideological differences, and increase cooperation in all fields.

Second, the two countries should strengthen their mutual trade, investment, and financial cooperation. A practical solution to trade imbalances is to expand American exports of hi-tech goods and services to China, instead of reducing Chinese exports to the US. China is further opening its market by rolling out a negative market access list and adopting a competitive neutrality policy. The US should seize the opportunity to share the dividend of China’s development. With their world-class construction capacity in building bridges, highways, and railways, Chinese enterprises can help the US improve its infrastructure. The two countries may increase investment in traditional clean energy, new energy, energy conservation, grid construction and operation, and pollution controls. They may also join hands to deal with climate change and increase agricultural investments, including in rural transport, water conservancy works, plant varieties, mechanization, and modern logistics. The US is very strong in financial services. Not long ago, China announced twelve policies for financial openness. The US must not miss these excellent, wide-ranging opportunities.

Third, the two countries should strengthen people-to-people exchanges. Over the past few years, cultural exchanges have thrived, effectively promoting economic and political cooperation, and consolidating public opinion in both countries in favor of Sino-US friendship. However, the US federal government has adopted visa restrictions on Chinese students in the US with longer processing delays and shorter validity periods. The US has also stopped granting 10-year visas to groups of Chinese scholars. These moves shocked me personally, as I find it essential to sow the seeds of friendship among our young people and enhance their mutual understanding.

In this light, I call upon US and Chinese authorities to renew a rational dialogue between the two countries as soon as possible so as to avoid a bigger crisis.

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