China-U.S. economic relations: accords and discords

By Zhou Shijian
0 Comment(s)Print E-mail China Today, February 27, 2012
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Following a hiatus of 21 years, trade relations between the U.S. and China were resumed with the declaration of the Shanghai Joint Communiqué during President Nixon's February 1972 visit to China.

Prior to this historic declaration, President Nixon issued a statement on April 14, 1971 outlining five steps to be taken before trade with China could be restarted.

On June 10 of that year, the White House published a list of potential non-strategic trade items, thus setting the ball rolling toward an end of the trade ban imposed on China 21 years before.

In the ensuing four decades China-U.S. bilateral trade has grown exponentially. Despite occasional contentions over minor issues, the maturing trade partnership between the two nations has become one of the defining geopolitical and indeed economic relationships of our times.

Setting the balance [By Jiao Haiyang/]

 Setting the balance [By Jiao Haiyang/]

Win-win: a background

The 1970s marked a period of recovery in China-U.S. trade, with trade volumes shooting up from zero to US $991 million by 1978. Following the warming of bilateral diplomatic relations, the People's Republic of China and the United States of America officially normalized diplomatic relations on January 1, 1979.

On July 7, 1979, government delegations from China and the U.S. signed in Beijing the Agreement on Trade Relations Between the People's Republic of China and the United States of America. The agreement provides that in order to establish bilateral trade relations on the basis of non-discrimination, both parties should grant each other most-favored-nation treatment, establish commercial and trade institutions, protect each other's patterns of trade, copy rights and trade marks and resolve bilateral trade issues through negotiations. This trade agreement came into effect on February 1, 1980. Thereafter, China-U.S. economic and trade cooperation developed at a rapid pace.

In 1979, the U.S. overtook West Germany to become China's third largest trade partner. In 2004, the U.S. became China's largest trade partner outright, surpassing Japan.

In 1980, China was the U.S.'s 24th largest trade partner but began to quickly move up the ranks. In 1985 China ranked 16th; in 1990 10th and by 2006 was second only to Canada, which shares a 9,000-kilometer border with the U.S.

This trade relationship continues to grow. Since the turn of the millennium, China's rapidly developing consumer economy has meant U.S. exports have been in increasing demand in the Middle Kingdom.

According to US-China Business Council's statistics, from 2000 to 2010 U.S. exports to China increased by 465 percent. During the same period, US exports to other countries grew by a comparatively meager 56 percent. This growth also marks a decline in U.S. exports to Japan, its fourth largest trade partner, of 7.4 percent.

China-U.S. trade has developed much faster than even the most optimistic predictions proffered by both Chinese and US economic policy experts before the normalization of the two countries' diplomatic relations.

Together for the better

Currently at different stages in their modernization quests, China and the U.S. have inherently complimentary industrial structures.

This complementarity ensures that both countries have what economists term "comparative advantages" – both countries benefit from trade. This fact should facilitate further deepening of bilateral economic and trade cooperation.

Starting from the 1980s, the U.S. embarked upon a third phase of post-war industrial restructuring, shifting labor-intensive industries overseas on a large scale to free up workers for more lucrative primary sector industries. It was precisely at this time that China commenced its reform and opening-up policy and began to absorb foreign investment on a large scale as well as develop its domestic processing trade at full tilt.

The shoe industry is a cogent illustration of industrial restructuring in action. In 1976, for every 100 pairs of shoes sold in the U.S. market, 53 pairs were made by the U.S. shoe industry; in 1986, this figure dropped to 22 pairs; in 1996, 11 pairs were domestically produced and in 2006 only one and a half pairs were "Made in America." Today, 98 percent of the shoes American people wear are imported, about 80 percent of which are from China.

Despite some recent exceptional incidents mainly relating to food safety that the media has chosen to focus on, daily consumer goods made in China have been well received in the U.S. for years and have earned a reputation for providing "good quality on the cheap."

Especially when one accounts for re-exports from Hong Kong, Singapore and Taiwan as well as goods produced by overseas Chinese, over the past 40 years China-U.S. trade has developed much faster than the U.S.'s trade with its other trade partners. In 2010, US trade with the three other "BRIC" emerging economies of Brazil, India and Russia was valued at US $131.7 billion -- only 28.8 percent of the US $456.8 billion of goods traded with China.

Along with rapid increase of bilateral trade, U.S. investments in China have continued to grow. From 1980 to the end of June 2011, U.S. firms plowed an actual investment of US $66.9 billion into the Chinese market and had played a part in the establishment of 60,000 enterprises in China. As indicated by the 2011 Business Environment Survey issued on March 22 of last year by U.S. Commerce in China, 85 percent of U.S.-owned enterprises enjoyed profits in 2010.

By the end of June 2011, Chinese firms' actual investment in the U.S. totaled US $5.17 billion. Since the financial crisis, an increasing number of China's large corporations and media enterprises have shown interest in investing in the United States.

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