Chen Wenling, Chief Economist of China Center for International Economic Exchanges (CCIEE).
Unlike 2020, this year will be one of healing, one in which we heal the wounds of the pandemic, heal the world economy after a great recession, heal the damaged China-U.S. relationship and heal the broken world order. Whether we can heal all these wounds and return to normal is a critical issue and will determine the prospects of China-U.S. relations and the future of the world.
On repairing China-U.S. economic and trade relations, I think the goal is to reshape them to be an anchor and stabilizer.
First, the development of China-U.S. economic and trade relations in the past four decades answers the needs of both countries, and it is not the result of one country imposing on the other.
Two-way trade, which was only $2.5 billion in 1979, surged to $583.7 billion in 2017 and reached a peak of $633.5 billion in 2018. It dropped by 15.3 percent in 2019, however, because of the trade war, a man-made malady. In 2020, the figure rose by 8.8 percent, in spite of the pandemic. These statistics reveal that the U.S. has an inelastic demand for Chinese goods. In other words, China doesn’t hard-sell its goods to the U.S.; the U.S. must meet its domestic demand.
Second, the development of China-U.S. economic and trade relations is in line with economic rules.
The international industrial division of labor, industrial transfers and the reallocation of production factors are all ongoing processes. The manufacturing industry currently accounts for 11 percent of the U.S. economy, as opposed to 70 percent during World War II. As Mr. Roach said, 102 countries export their goods and services to the United States, hence its trade deficit.
Before the dissolution of the Bretton Woods system, the United States exported more than it imported. But with the end of the system, the convertibility of the U.S. dollar to gold was terminated and the country gradually saw deficits in its international trade. This was a historical turning point: First, the United States manufacturing sector began to relocate overseas; second, the country began to print more money, as it wanted to import global goods, because the link between the dollar and gold was severed. In the end, now it runs a trade deficit, and this is something consistent with economic rules.
Third, China-U.S. economic and trade cooperation is an irresistible trend.
To begin with, the fact that intermediate goods account for more than two-thirds of their trade means that Chinese and U.S. industrial chains are highly interconnected and mutually reinforcing. Therefore, two-way economic and trade cooperation are unlikely to be cut off. Then, it is an inevitable trend to achieve trade facilitation, investment liberalization, tax reductions or even zero tariffs.
The digital economy and digital trade are also expected to continue to march forward. Therefore, trade multilateralism and rule-making are mega trends. So are regional economic integration and economic globalization. The China-U.S. relationship not only affects the two countries but also carries global significance.
Fourth, the Biden administration needs to return to multilateralism as soon as possible and play a role within multilateral frameworks.
But that is not to say that Washington partners with its allies to impose pressure on China. Instead, it needs to work together with China, as well as its allies, to reshape the rules of global trade and the international trade order in ways that benefit all countries. It is an example of hegemonism and bullying when one country attempts to address current trade issues without respect for rules and places its own interests above globally recognized rules and the interests of the world.