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No Fast Economic Fix from China-US Talk
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By Tao Wenzhao

How should we evaluate the second round of the China-US Strategic Economic Dialogue (SED) held in Washington May 22 to 23?

Carlos Gutierrez, US commerce secretary, got it right: The strategic economic dialogue focuses on the overall situation, not on resolving particular issues. Therefore, no short-term results should be expected.

The China-US Joint Economic Committee and other joint committees are already in place to handle particular economic matters. The strategic economic dialogue is needed to address the two countries' long-term economic relationship from a wider perspective. The goal is to develop sustainable mutually beneficial economic ties.

This task goes beyond the functions of limited-focus joint committees. The eagerness for immediate results does not work here.

The Washington dialogue strengthened mutual trust through intensive discussion on issues of deep concern to both sides. This is the big yield of the dialogue.

Chinese Vice-Premier Wu Yi, who headed the Chinese delegation, emphasized the intensive discussions on the service industry, energy, the environment, balanced economic growth and innovation. Energy and environmental protection were the most serious issues discussed. Cooperation in these two areas has great prospects and is expected to inject vitality into both economies.

Also, both sides agreed to promote balanced growth of their economies through macroeconomic policies and to encourage innovation through policy exchanges and technological cooperation.

In his opening statement, US Treasury Secretary Henry Paulson said both China and the US face challenges of domestic protectionism and questions about the merits of trade and globalization. He went on to say: "There is a growing skepticism in each country about the other's intentions. Unfortunately, in America, this is manifesting itself as anti-China sentiment."

This is worth attention.

After the US mid-term elections last year, protectionist sentiment gained strength in the US Congress, with China as a ready target. According to US statistics, the total volume of US-China trade in 2006 reached US$343 billion. The US sustained US$232.5 billion in trade deficits with China, almost three times that of its trade deficit with Japan. For the past four years, China has been the biggest source of the US trade deficit.

A host of factors explains the US trade deficits. They include international division of work, Americans' low savings rate, and restrictions on exporting high-tech products to China. It is not so simple a matter as revaluating the renminbi, despite the beliefs of some US lawmakers.

To make matters worse, ideological factors, which find expression in the theory of a "China threat", have gotten mixed up with protectionist sentiment.

In 2000, the US-China Economic and Security Review Commission was set up to watch over trade between the two countries, US investment in China, and Chinese investment in the US which could possibly harm US security. Every year, the commission submits a report to Congress, organizes frequent hearings and circulates seemingly plausible but inflammatory opinions. In 2005, when China National Offshore Oil Corp planned to purchase California-based Unocal, the commission played a major part in defeating the acquisition. It stoked the China fears on Capitol Hill, to some extent damaging China-US economic ties.

We should be aware that partisan fights are a daily occurrence in US politics. This is especially true when the White House and Congress are controlled by different parties. With the US presidential election next year, it is possible that the US trade imbalance with China will became a campaign issue.

In fact, bilateral economic relations benefit both economies and peoples. The Chinese and US economies complement each other in terms of structure and level of development.

The US is the biggest economy in the world and China the fastest growing one. Co-development of the two economies is of vital importance to the progress of the entire world economy.

It is natural that some friction arise with bilateral economic interaction. It should be remembered that trade friction between the US and Japan in the 1980s was much more intense than the current China-US friction. The problems can be resolved through negotiations based on equality and by implementing the principle of mutual benefit.

Both sides have numerous options in promoting bilateral economic and trade ties.

On the part of the US, easing control on the export of high-tech products to China is a feasible move. Since the publication of the notorious Cox Report in 1999, the US has been restricting high-tech exports to China. This has led to the decline of US market share in China and, in turn, became a major factor contributing to the US trade deficit.

The restrictions have aroused resentment from US businesses which are well aware that China can turn to other countries such as EU members and Japan for high-tech wares. In the end, it is the US that pays for the restrictions.

But the situation is improving. Westinghouse Electric Co is set to introduce third-generation nuclear power technologies in China. This type of cooperation helps reduce the US trade deficit with China.

The author is a researcher with the Institute of American Studies under the Chinese Academy of Social Sciences.

(China Daily May 28, 2007)

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