[CNR.cn] Fan Zhiyong: Focusing on Domestic Realities and Taking a Long-term View in Actively Coping with Trade Frictions with the U.S.

On March 22, U.S. President Donald Trump signed a memorandum that would impose tariffs on up to 60 billion U.S. dollars of imports from China, starting a trade war with China. Seen from the potential list of goods subject to tariffs announced by the U.S. government, the U.S. trade retaliation is not solely aimed at the trade deficit between the two countries. Major traditional deficit items such as clothing, furniture, footwear and textiles did not appear in the potential tariff catalog. On the contrary, the catalog refers directly to the emerging industries involved in “Made in China 2025.” Besides that, the U.S. also used tariff exemption and other means to woo and coerce its allies, attempting to form an encirclement around the trade war with China.

The U.S. threatens to launch a trade war for two real purposes. Firstly, by squeezing the market space for high-tech products and restricting the development of China’s emerging industries, the U.S. could maintain its absolute superiority in the high-tech area. Secondly, amid the transition between old and new impetuses of the Chinese economy, the U.S. could force China to open its doors to the U.S., including the Internet and the financial market by exerting greater pressure on China. By doing so, the U.S. will be able to maintain its technological and market advantages and gain greater economic benefits from the Chinese market, achieving the goal of killing two birds with one stone.

This trade friction, which was once known as possibly “the largest trade war ever,” objectively reflects the changes in China’s economy and international status. According to the historical experience of Europe and Japan, the closer the economic strength of a country or region is to the U.S., the more serious the trade frictions and conflicts are. With the further improvement of China’s economic level and comprehensive national strength, it can be expected that frictions between China and developed countries in the areas of trade and investment will become more normalized, and the possibility of intensification in specific periods and on specific issues can not be ruled out. This is an objective fact that is not based on the subjective will of an individual, and we should be fully prepared for it.

In the face of the menacing trade war threat, our basic principle in the short run should be focusing on domestic realities and using countermeasures and negotiation means, striving to promote negotiations through countermeasures to ease the conflict between the two sides. In the long run, we should pay attention to three aspects. Firstly, we should adhere to and expand high-quality opening up to the world. With the continuous expansion of China’s overall national strength and opening up, the quality of opening up should also be continuously improved. The great efforts made by the Chinese government to upgrade the business environment, improve laws and regulations and strengthen the protection of intellectual property demonstrate the continuous endeavor to enhance the opening up quality. Secondly, Chinese enterprises should work hard to improve their internal product, technological and management innovation so as to reinformce their resistance and immunity to foreign trade frictions. The country should also strengthen its support for domestic strategic emerging industries and accelerate the transformation process of old and new impetuses through industrial policy adjustment and business environment cultivation. Achieving the “Two Centenary Goals” and the great rejuvenation of the Chinese nation must not be shaken by the turmoil in the international trade environment. Thirdly, we should draw on the experience and lessons of other countries and formulate and adjust economic policies prudently and scientifically. At present, the impact of external trade frictions on China’s economy is relatively limited, and is far from reaching the extent of being dealt with through macroeconomic policies. The bottom line for China’s current macroeconomic policy is to avoid the outbreak of systemic financial risks. This must be firmly adhered to.

We should look at the trade friction between China and the U.S. dialectically. The trade friction provoked by the U.S. will harm China’s interests in the short term. However, through this trade friction, we can test our economic ability to resist external shocks, improve market economy and economic restructuring, and accumulate experience in dealing with trade frictions, among others. Resolving trade frictions requires superb wisdom, and experiencing them is also about accumulating experience in coping with the greater uncertainty that may arise in the future.

(The author is a Research Fellow at the National Academy of Development and Strategy, RUC)