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Cooperation Needed to Solve Differences

There has been increased concern in the United States over the US-China trade imbalance, with US politicians pushing for higher trade barriers on imported Chinese goods. But these trade barriers can do nothing but worsen US-China trade relations and possibly affect the US economy as well.  

China and the United States are two of the most important nations in the world. China is the largest developing country, while the United States is the largest developed country. Working together, they can build a better global trading environment.


The United States and China have mutual economic and trade interests. Bilateral trade between the two countries has developed rapidly after China's World Trade Organization accession, but the tensions generated by a growing trade imbalance have become a major concern to both governments.


The issue of trade imbalance has become one of many issues raised by those inside the United States as examples of China's failure to abide by the rules of the World Trade Organization (WTO).


Under the WTO framework, China has made significant progress in its domestic economic structure and trade policy reforms during the past two years. And China is working to fulfill its WTO commitment and take more trade liberalization initiatives.


Although the United States and China still hold different views on the true size of the trade deficit issue, on the whole, development and cooperation between the two nations are still much more important.


Therefore, the best way to resolve these differences is through a thorough and constructive dialogue leading to mutually supportive economic and political steps.


Confrontation should be avoided because it will not help solve the differences, but only serve to worsen bilateral relations, something which is not in the interests of either side.


The key to ensuring a better relationship is to gain a better understanding of the Sino-US trade relationship and of the evolving economic and social situation in China.


China has been pursuing a more open market for more than 20 years and has made tremendous progress regarding its trade policy practices.


China has made important commitments and is taking concrete actions to reduce the trade imbalance.


At present, China is the biggest importer of civilian aircraft from the United States. The prospects are good for the US companies to export their technology.


The United States is now China's second largest trade partner, while China has become the United States' fourth largest trade partner. It is clear that the United States has benefited greatly from China's booming economy.


Over the years, China has played a crucial part in the recovery of Asian economies from the Asian financial crisis in the late 1990s. China is increasing imports from regional economies and contributing to the economic development not only in Asia but also in the world, including the United States.


China will play a crucial role in major international issues which the US will face in the decades to come. Normal trade relations with China, thus, are in the commercial and strategic interests of the United States.


The United States should base its China policy on its long-term interests and be fully aware that US interests can only be served by a secure, stable and open China.


To get a more accurate impression of Sino-US trade, the basis for calculating the bilateral balance by including Hong Kong in China should be changed.


And an analytical way for value-added trade balance should also be developed.


US import statistics ignore the factor of entrepôt trade and value added from entrepôt trade, which has led to over-estimation of its imports from China.


According to US information, 20 percent of imported Chinese goods are directly shipped to the United States, while the remaining 80 percent gets into the US through a third place, mainly through Hong Kong.


Therefore, the added value created at the third place after the goods have left China should not be calculated as exports from China. The fact is that only about a quarter of US re-exports to China via Hong Kong were included in the US statistics of its exports to China.


Meanwhile, China must comply with its WTO commitments and continue its domestic reforms, such as the State enterprise reform, banking system reform, and social welfare system reform, on schedule in order to build a solid foundation for long-term economic growth and trade development.


Economic reforms will help China become a well-structured market economy, and better serve its globalization strategies.


Besides, further trade liberalization measures should be adopted in line its domestic reform strategy.


(The author is an associate professor at Shandong University and currently Ph. D. candidate at Claremont Graduate University of the United States.)


(China Daily December 15, 2003)

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