China last month announced that its trade surplus with the US last year grew more than 8 percent to US$275.8 billion, about 65 percent of its total trade surplus. The huge trade imbalance is a political headache for US President Donald Trump and Chinese President Xi Jinping (習近平), fueling worries over a trade war between the world’s two largest economies. Trump has often threatened Beijing with economic sanctions for Chinese protectionist practices that he has said are hurting US industry.
While China’s phenomenal economic growth has escalated geopolitical and commercial disputes between the East and West, provoking negative media coverage, some stereotypes are to blame for a poorly informed public. One persistent criticism is that US and European media outlets connect China’s trade surpluses with a widespread perception that the Chinese market remains closed to outside investors. The assumption is that if the Chinese market is fully liberalized, US and European trade deficits with China would be reduced or even disappear.
The gradual opening of certain business and industrial sectors in China has yet to lead to a boom in US and European exports to the Far East, because longstanding US and European enterprises are less prepared than their Chinese counterparts to make significant capital investments and technological breakthroughs.
Western politicians often confuse the trade imbalance with China’s trade barriers. Trade imbalance is more affected by ordinary consumers’ saving and spending behavior than by a single country’s commercial policies and trade distortions. Whether there is a causal connection between massive Chinese exports and high unemployment in particular sectors has yet to be proven. If there is, the correlation varies from industry to industry.
The practice of referring to the final balance sheet of bilateral trade, and then demanding certain concessions from China, is a political trick aimed at domestic supporters who feel less secure in a competitive global economy. It does not fully reflect the comprehensive scale of international trade. Then there is the failure of government bureaucrats and economists to agree on a commonly shared set of statistics that reflect the reality of bilateral trade flows. It is not enough to rely on the trading figures gathered by customs officials.
Almost in every industrial sector, much production is conducted as a multidirectional exchange between home companies and international subsidiaries. Taiwanese, US, European and Chinese companies manufacture and subcontract in each other’s markets. A comprehensive picture of Chinese sales in the US and Europe would need to consider the huge amount of products manufactured by foreign subsidiaries in China.
Lumping a variety of bilateral trading activities and assuming false linkages are convenient tactics of rhetorical manipulations that Western politicians use to secure electoral gains. This only reinforces common misconceptions about the complexity of the global economy.
How the US-China economic relationship evolves will garner much attention this year. Facing an economic downturn, Xi is determined to pursue a stable environment for China’s export-driven modernization program. As Trump is keen to reduce the US trade deficit, his administration is not just strengthening ties with regional allies, such as Taiwan, Japan and India, but also implementing a strategy of soft containment toward China, aimed at persuading Beijing to adhere to transnational trade regulations while imposing costs on uncooperative Chinese behaviors.
Only time will tell if the US and China will reconcile their differences and negotiate a fair, comprehensive and sensible bilateral trading arrangement.
Joseph Tse-hei Lee is a professor of history at Pace University in New York City.
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