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Close the trade deal and move on to broader US-China relations

by ace
Close the trade deal and move on to broader US-China relations

Aerial view of sitting containers stacked in Lianyungang Harbor on June 3, 2019 in Lianyungang, Jiangsu Province of China.

Wang Jianmin Visual China Group | Getty Images

Washington deserves full support from the public and its friends and allies in its effort to balance trade accounts with Beijing. China's existing trade surplus with the US is so large that it represents an aberration in terms of international trade theory and policy.

At the level of economic management, China's systematic and excessive decades-long surpluses with the US have nothing to do with the illusion of trying to resolve savings differences. This simple identity in national accounts reflects Washington's unforgivable neglect of balanced growth and Beijing's stubborn pursuit of rapid economic development, aided by US investments, free technology transfers, and open US markets for goods and services from China.

China has worked hard – very hard indeed – to take advantage of all this, and I am sure Beijing statesmen now realize that current surpluses in their US business cannot continue.

Of course, Beijing knows this because China is moving to reduce over-reliance on foreign demand by increasing domestic spending through powerful growth drivers, such as infrastructure investments, urbanization, education, poverty eradication and expansion of poverty programs. social assistance.

Trade Numbers China Should Take Seriously

These efforts shifted China from chimney manufacturing to high-tech production processes. Along the way, the country has taken giant steps towards the goal of Chinese Communist leader Deng Xiaoping, established in 1979, to build the "xiaokang society" – which current leaders call a moderately prosperous Chinese nation.

At the time, About 60% of China's 1.4 billion people live in urban areas. About half a billion of these urban dwellers are part of the rapidly growing middle class,external consumption at about 70% of the total demand and production of the country.

This large and increasingly affluent domestic market offers alternative selling points for export-oriented industries. At the same time, nonfinancial foreign direct investments also offer opportunities for diversified export sales.

In the first eight months of this year, Chinese companies invested $ 70 billion in overseas manufacturing, business services and retail and wholesale trade.

Particularly important appear to be the Chinese export points that opened during this period in 53 countries participating in Beijing-sponsored Belt and Route infrastructure projects covering Asia, Europe and Africa.

All of this means that China's rapidly expanding domestic markets – along with the rapidly growing economies in East and Central Asia, the merger of development projects between the Eurasian Economic Union and Belt and Road ventures and relatively liberal access. from Beijing to European markets – they must contribute, it is possible to divert US export flows without damaging Chinese manufacturers too much.

There is an urgent need to do this, because the trade figures for the first eight months of this year do not look good at all. During this interval, China pocketed a net profit of $ 232 billion on its US assets sales of $ 302 billion, while US exports to China reached $ 70 billion.

This means that there is a long way to go to balance bilateral trade accounts.

Beijing must close deal

The ball is on the court in China, and the choice is simple: increase US imports to maintain a gradual decline in Chinese exports to US markets or maintain the current low level of US imports while dramatically reducing sales to US. USA.

Washington, for its part, has to abandon reckless attempts to impose legislative changes under a permanent threat of discretionary trade sanctions. This foray into China's legislative process is unnecessary to protect US interests, and is clearly unacceptable to China.

US trade law – and the far-reaching financial system built around the dollarized world economy – provide ample means to protect US intellectual property, attempts to sanction forced technology transfers, enforce compensatory rights to industry's illegal subsidies, and use deed to take action. disabling reciprocity in cases. barred market access for US companies in China.

In view of all this, it seems that achieving a mutually acceptable trade balance with China should be a simple and straightforward matter.

The rest of US-China relations are much more complicated due, in part, to Washington's full-spectrum domain theories, with its latter-day descendants exemplified by Asia or Indo-Pacific pivots and strategic competition.

Somewhere between what former White House adviser John Bolton called "panda-huggers" and "wet noodles," and his enchantment about hazy US-China cooperation.

Confused, isn't it?

In fact, if the US were to show clear thinking about the role it wants to play in an already established multipolar world, where the European Union wants to go its own way, while China, Russia and India insist on affirming their views and interests in the world order. western.

Unfortunately, none of this seems to be a priority in Washington's bitter partisan divisions, driven by the unfolding electoral cycle and attacks on the nation's executive authority.

China, however, should not be influenced by any of these events. Beijing must understand that it must address the structural trade problem it has created with the US before it can address broader economic, political and security issues with Washington in the coming years.

Investment Thoughts

The latest US-China trade data indicates that Beijing is not doing what it should to reduce its excess surpluses by buying more US products.

It is probably true that the US may have slowed the trade adjustment process with its unnecessary forays into China's economic legislation, but this is no excuse for low purchases of US products or the absence of drastic cuts in Chinese exports to US markets. USA.

Apparently, China refused to allow Washington interference in its sovereign policy domains. You should now proceed – unilaterally if necessary – to align your trade accounts with the US.

I believe this is what we could see in the current round of negotiations. Otherwise, there is no advantage for China in a protracted tariff struggle that would severely hamper its access to US markets, technology sources and financial instruments in a dollar-dominated global monetary system.

Comment by Michael Ivanovitch, independent analyst focusing on world economy, geopolitics and investment strategy. He served as senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia Business School.

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