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Sino-US Trade Spats Affect World

Dealing with trade friction between China and the United States in a proper way is not only vital to both countries' economic interests but will also have an impact on globalization.


Washington's trade protectionism, which has been on the rise recently, is casting a long shadow over Sino-US trade relations.


From an economic perspective, China and the United States are naturally complementary trading partners. But economics is not always in harmony with political calculations.


Globalization should bring long-term benefits and universal well-being, but politicians are usually preoccupied with courting and winning over voters.


When the economy is in recession or hit by other hardships, politicians usually have the flair to find a scapegoat.


Although the economy is rebounding for the time being, the United States is still plagued by a host of problems such as grim unemployment and a huge account deficit.


The enormous current account deficit, which many in Washington blame on China's so-called currency manipulation, is in actuality caused by the United States' low household saving rate and huge budget deficit. However, finding a scapegoat to shoulder the blame may be more attractive than adjusting domestic policies.


Economists realized long ago that administrative organs are more inclined to favour free trade than law-making bodies are.


This is true of the United States, where the White House favours free trade more than Congress does.


The US Congress is far hasher towards China than the American public and business community, according to a recent survey conducted by Zogby International.


The poll, commissioned by Committee of 100, a group of prominent Chinese-Americans, found that 59 per cent of Americans have a favourable view of China, up from 46 per cent in 1994 when a similar survey was carried out.


But only 19 per cent of Congressional staff see China in the same positive light.


Just 24 per cent of the American public believe China is an economic threat, compared to 54 per cent of Congressional staff.


Why is the Congress so hostile towards the Chinese mainland? There are many reasons, such as Taiwan's lobbying activities on Capitol Hill. Many of the new generation of China experts in the United States were educated in the island and therefore are more amenable towards it.


The fact that China's US-bound exports are too concentrated while the US China-bound exports are too scattered may be a major factor influencing the US Congress' view of China.


Chinese exports account for only 13 per cent of total US imports.


However, Chinese exports account for 30, 40 or even 60 per cent of US total imports in some sectors.


According to Richard Katz, senior editor of The Oriental Economist report, China's top 10 US-bound export products account for, on average, 43 per cent of America's total imports of that product. This is consistent with China's own statistics.


Such high export concentration makes China vulnerable to risks when facing trade disputes or other economic shocks.


The high concentration of Chinese exports to the United States may have impaired the interests of US industries, especially small and medium-sized businesses, which are the Republicans' stalwart supporters.


Firms that feel hard done by always unite to champion their interests and engage in lobbying.


But consumers, who are the main beneficiaries of imported goods from China, are too scattered to unite and protect their interests.


In the end the voice of trade protectionism usually gets louder and louder.


On the other hand, US exports to China are surging.


Overall US exports growth has stayed almost static since 2000, but US exports to China have nearly doubled since then, with the percentage of China-bound exports as part of total exports increasing from 2 per cent to 4.2 per cent.


But US exports to China are scattered over multiple fields, with only a handful of exporters heavily dependent on the Chinese market.


According to Katz's calculations, among 450 products with six digit Harmonized System coding, America only exports 14 to China that exceed 25 per cent of total volume of exports of the categories.


And the export volume of these 14 products is only accounting for 2.6 per cent of America's total exports.


Furthermore, such products are mainly concentrated in agriculture or minerals - sectors that hold little sway in terms of political influence in the United States. This means their voice will not be heard on Capitol Hill.


Trade should not become a political game played exclusively by a small number of vested interest groups.


At this juncture, how China and the United States resolve trade spats will not only affect their own economic interests, but those of the rest of the world as trade protectionism is such a sensitive issue now.


(China Daily July 18, 2005)


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