[Haiwainet] Song Wei: Putting Pressure on China Can Hardly Solve the U.S. Trade Dilemma

According to Bloomberg, the U.S. Trade Representative (USTR) Robert Lighthizer recently delivered the Trump administration’s Trade Agenda Policy and Annual Report to Congress. The report is warning that the U.S. will use “all available tools” to pressure China on trade. It also points out that China hasn’t lived up to the promises of economic reforms it made when it joined the World Trade Organization in 2001, and actually appears to be moving further away from “market principles” in recent years. China's "statist" policies are causing a "dramatic misallocation" of global resources that are leaving all countries poorer than they should be, said the report.

“China is free to pursue whatever trade policy it prefers. But the United States, as a sovereign nation, is free to respond,” according to the report, which is prepared by the U.S. Trade Representative’s office.

The report shows that the U.S. government prefers unilateralism to multilateralism when it needs to cope with “unfair trade” issues. It would not be as patient as it advocated and wait for the changes of China. As the world’s largest economy, the United States is one of the biggest export markets for Chinese goods, accounting for about 15%. Since the US trade deficit with China is the world's largest, China’s international trade has, to some extent, depended on the U.S. rather than the opposite.

While in Trump’s point of view, such asymmetrical dependence should be turned into superiority and the U.S. should force China to reduce its trade surplus with the United States. The US government holds that China does not follow the rule of fair competition, rather, it takes cost advantages by “dumping” its products on the American market. Such problems cannot be solved by WTO as China's economic model and political environment have allowed Chinese enterprises to have advantages of size, subsidy and cost in comparison with that of the American companies'. Those privileges have also led to problems in the US, such as the unemployment of workers, and the income gap between the rich and the poor.

However, the American trade deficit with China is not just as what the Trump administration believes that only benefit China while totally detrimental to the United States. In fact, many complicated factors should be considered when talking about the trade deficit, and more reasonable measures could be taken. It is worth noticing that taking the “stick” approach or threatening to strike a trade war could not promote American economic development or consolidate its hegemony. Here are some of the reasons:

First, China is not the only one benefit from the trade deficit. Since the industrial structures of China and the U.S. are different, many manufacturing and labor-intensive companies would choose China because of the lower cost. However, it is undeniable that these industries’ profits are relatively lower and may cause heavier pollution problems. Under the circumstances, China has essentially subsidized the Americans by exporting a large amount of cheap manufactured products to the United States.

Second, a large number of those industries that export goods from China to the United States are invested by American companies. These companies utilize lower cost, in particular, labor cost, in China and earn maximum profits, which will eventually return to the US. The aim of tax relief act signed by Trump administration is actually attracting those profits. Although the profits have not yet completely return to the United States, the money belongs to those American companies and Chinese government and people only earn a small proportion in the way of revenue and wages.

Third, the trade deficit mainly derived from tangible goods trade but not trade in service, on which the United States has the trade surplus with China. Taking trade-in service into consideration, the trade deficit issue is not as severe as what the U.S. administration claimed. In 2016, China’s trade deficit with the United States reached 55.7 billion U.S. dollars, about 40 times the figure of 2006. Moreover, the different macroeconomic conditions at home and abroad, and the government's decision to open its own market are also the factors that lead to America's long-term foreign trade imbalance.

Meanwhile, in the past years, the United States has tolerated discrimination of other countries on trade and allowed them to hitchhike. This, on the one hand, has caused some losses for the US. On the other hand, such inclusive spirit has made a contribution to building an increasingly open environment for the development of the international economy, which enlarges the American advantages on the global scale.

Finally, during the process of economic globalization, some of the United States' industries are indeed vulnerable to international competition, which may lead to labor unemployment. However, in the long term, America should not simply focus on protecting policies, it should rearrange its own economic structure, and offer educational or re-employment opportunities for workers of related industries. Thus, the United States’ international competitiveness will be enhanced or even enlarged through the transformation of the economic structure. It should also be alerted that damaging the original multilateral open system will lead to trade frictions or even trade wars, which is detrimental to all countries.

The author is a research fellow of NADS, RUC.