Editorial: Sino-U.S. Trade Conflicts Require Resolute Actions From Beijing
President Xi Jinping’s chief economic advisor Liu He is departing for Washington on Tuesday in a bid to defuse trade tensions. It is a timely move, as the U.S. has been drumming up rhetoric of China’s trade imbalances and threatening reprisals.
Based on national security concerns, the U.S. Commerce Department recommended imposing quotas or harsh tariffs on steel and aluminum imports, especially on a few key countries that include China. A series of investigative reports on China are expected to come out soon. U.S. President Donald Trump’s decisions following these reports will be worth China’s attention.
China’s commerce officials have said that the country will take measures necessary to protect its own rights and interests if U.S. decisions affect China’s interests.
Although a large-scale trade war has yet to break out, alarms have been sounding on and off. China and the U.S. are facing a serious situation, even though the two countries have often expressed goodwill toward each other at diplomatic occasions.
The two countries engaged in a wide range of economic exchange in 2017, creating new communication arrangements, including the China-U.S. Comprehensive Economic Dialogue, to reduce trade friction through talks and deals. China also created the “100-Day Plan” to give the U.S. better access to the Chinese market in a short period of time.
However, a year after Trump assumed office, the trade deficit between the U.S. and China has not fallen, but instead has continued to rise. The U.S. now appears to be redefining its economic and trade ties with China. In Trump’s first national security strategy report, the U.S. raised economic security to the level of national security, and said it believes that China is now challenging U.S. interests, its economy and values.
Meanwhile, the U.S. conducted a record number of investigations into trade issues with China in 2017. In addition to its regular investigations into China’s alleged dumping and government subsidies, the U.S. also sought unconventional measures against imports from China, such as the “Section 201” probe into imported solar cells and modules, and a “Section 232” investigation into imported steel and aluminum.
Intellectual property is another key area of Sino-U.S. trade conflicts. The U.S. will soon announce the result of a “Section 301” investigation into Chinese intellectual property and technology transfers, and it is likely to impose punitive tariffs on Chinese products. The U.S. Congress is also reportedly planning to enhance the power of the Committee on Foreign Investment in the United States, which may result in tighter screening of Chinese companies’ attempts to acquire U.S. technology companies.
Are all these moves empty talk or a real threat by Trump? Most observers believe the prospects for Sino-U.S. trade relations are not promising, and Trump’s election promise of “America first” has been gradually becoming a real policy direction.
Such a trend may be a result of increasing protectionism and nationalism worldwide. U.S. concern about China’s rapid rise in the past 40 years may also have contributed. In the 10 years after China joined the World Trade Organization in 2001, the two countries became the world’s most important trade partners. However, as Chinese companies’ competitive power grows, they have begun to challenge the U.S., some even in technology areas in which the U.S. has traditionally led. The complementary relations between the two countries are diminishing, and trade ties, often considered a stabilizer of the China-U.S. relationship, are facing a serious test.
For the U.S. public, a huge trade deficit is an easy concept to comprehend and can easily become a scapegoat for the dissatisfaction with the country’s current situation. Many American government officials also believe the trade issue is the root of all problems, adding fuel to the public’s blaming China. Many officials in the Trump administration are advocating unconventional measures to gain more opportunities for U.S. companies. The sentiment has been driving significant changes in U.S. trade policies, leading the country to discard multilateralism, which is based on rules, and instead embrace bilateralism, which emphasizes power.
But Trump’s unconventional rhetoric and actions are undermining U.S. leadership in global governance. A number of economists argue that deficits should not be viewed as a measure of economic relations. China and the U.S. have very different positions in global value chains, and their respective trade statistics vary considerably. In recent years, the growth of the U.S. trade deficit has been driven mainly by a strong economic recovery that has enabled U.S. consumers to buy more imported products. A change in trade policy could shift exports and imports from one country to another, but it is unlikely to reduce the U.S.’ overall trade deficit, which is determined by the structure of the U.S. economy.
The first thing China must do in the face of the U.S.’ aggressive moves is to maintain patient and meticulous communication. Mainstream Sino-U.S. trade relations are still mutually beneficial. China is the world’s largest manufacturer, and the U.S. is the premier technology and financial power. At the same time, China should resolutely defend its rights and interests and make use of multilateral mechanisms to make appeals. Protectionism and unilateral action are unpopular, and the Trump administration has made too many enemies. China can create countervailing cooperation with other countries. China itself has no shortage of measures to fight back. It should have a plan. Experts suggest that China could consider deferring the opening of its domestic-services market to U.S. companies and giving the opportunities to other developed countries instead. In short, China should convince the U.S. that its retaliation is a “credible commitment.” The cycle of retaliation and counter-retaliation only escalates the conflict and seriously damages both sides.
The fundamental policy to deal with China-U.S. trade conflicts is to deepen reform inside the country and expand its opening-up to the outside world, so as to turn external pressure into a driving force for reform. The key is to improve the economic system, build a sound business environment, and make breakthroughs in the important fields of property rights protection, market access and financial supervision. The U.S. is concerned about the protection of intellectual property rights and the maintenance of fair competition. It is true that China needs to improve these issues. China has been actively addressing these issues, a move that is in line with its own development needs. As for overcapacity in industries such as steel and nonferrous metal, the Chinese government has made some achievements and will continue to push forward.
Dealing with trade conflicts should be reasonable, restrained and always keep China’s own interests in mind. The worst-case scenario is when two countries use trade protection against trade protection, which leads to bilateral and multilateral losses. There is no shortage of such lessons in history. China’s policymakers have said that China will make new and bigger moves on the 40th anniversary of the country’s reform and opening-up. This is the wisest and most effective strategy to deal with trade friction. It would be a blessing for China and the world if the promise is fulfilled.
Translated by reporter Wu Gang (firstname.lastname@example.org)
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