Professional Interpretation

The differences in resources between China and the United States have laid a solid foundation for economic and trade cooperation between the two countries. As we all know, China has a large population, rich labor resources with low labor costs, while the United States is with larger land and fewer people, developed cultivated land resource and its land costs are relatively low. Besides, in China, the per capita education level and scientific and technological development level lag behind those of the United States. Since ancient times, the most developed industries in China have been traditional labor-intensive industries, while the United States has developed capital-intensive industries into one of the most important industrial types within their territory. According to the below Table 1 sourced from the China Customs and the Commercial Data Center of the Ministry of Commerce of the P.R.C., China's exports to the United States are mainly electronics and labor-intensive light industrial products, a lot of which are from U.S. manufacturers that send raw materials to China for low-cost assembly. The biggest categories of China’s imports from U. S. are mainly large-scale means of transportation, high-tech products, as well as agricultural products. As the resources between the two countries are highly complementary with each other, it is reasonable and feasible for the two countries to establish a long-term good economic and trade relations. Since China joined the WTO, the volume of trade between China and the United States has increased rapidly, and the two countries have gradually become the most important trading partners of each other.

Table 1: Major China’s imports from and exports to the US

Nowadays, China and the United States are classified as the world's largest developing countries and developed countries, and the world's 2nd and 1st largest economies respectively. With no doubt, the economic and trade relations between the two are the largest bilateral economic and trade relations in the world. The status and development of the economic and trade relations between the two countries not only affect the domestic economy of their own, but also have an important influence on the world economy. However, along with the rapid development of the trade and investment between the two countries, China's trade surplus with the United States continues to expand, and more serious trade imbalances between the two countries have led to more and more disputes in the economic and trade relations between the two countries.

See below Table 2 which refers to the amounts by month of China’s import and export of goods with the United States in 2018:

Table 2: China monthly import and export of goods with the US in 2018

(Source: Central Administration of Customs, P.R.C.)

According to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau, the status of the U.S. international trade on imports and exports of goods with China since 1999 through 2018 is as the below Table 3:

Table 3: 1999-2018 US import and export of goods with China (All figures are in Millions of US Dollars)

(Source:  The U.S. Bureau of Economic Analysis and the U.S. Census Bureau)

We may easily infer from these tables that the U.S. has been enduring the large amount of trade deficit for relatively long time. After President Donald Trump took the office in 2017, in order to achieve his goals of reducing the trade deficit and creating more jobs for the United States, China has been listed as the primary target enemy of Trump’s protectionist, and the Sino-US trade friction therefore started upgrading.

According to the allegations made by the Trump Administration, main trade disputes between China and the United States include the following accusations  raised by the United States Government against China:

1. The Trump Administration accuses that the declination of US GDP growth is due to China’s opening up and accession to the WTO, and because of the same, the domestic unemployment rate keeps rising, and there is a great loss of manufacturing jobs within the United States;

2. The Trump Administration accuses the Chinese Government of biased protection on domestic enterprises, especially on Chinese state-owned enterprises resulting in unequal treatment on foreign companies which include those invested by Americans. Besides, China is also accused for imposing trade barriers such as quotas and licenses on American exporters for protecting and favoring Chinese manufacturing enterprises at the expense of foreign companies;

3. China is accused for forcing the foreign enterprises to transfer and assign technologies and other intellectual property rights to Chinese partners for acquiring the market access in China.

In response to the above accusations and the continuous trade sanctions imposed unilaterally by Trump Administration on commodities exported to the U.S. from China, China issued a White Paper on "The Facts and China’s Position on China-US Trade Friction" in September of 2018 to clarify the facts about China-U.S. economic and trade relations, demonstrating China’s stance on trade friction with the United States in order to pursue reasonable solutions. The Ministry of Commerce, the Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Finance and the State Intellectual Property Office jointly introduced and interpreted through a press conference the contents of the White Paper aimed at one-to-one rebuke to the misconceptions held and alleged by Trump Administration.

Firstly, Trump Administration only focuses on the trade deficit on goods with China endured by the United States, but they are keeping blind on the service trade deficit with the US endured by China. In fact, the US is the biggest source of China’s deficit in services trade and this deficit has been increasing fast . According to the White Paper and relevant census results, China and the United States have both gained huge benefits and established win-win relations via long-term trade and economic cooperation since the opening-up of China in 1970s. By way of entering into China market, the United States has acquired a great deal of investment opportunities which helped a lot in promoting US domestic economic growth. With the sound two-way trade relations and because of the various goods exported by China, US domestic customers’ choices are enriched, people in the United States may pay less money on buying certain goods, and the living cost in the United States has thus been reduced. Obviously, goods exported from China really improved the consumer welfare in the United States.

Secondly, speaking of China’s unfair treatments towards foreign enterprises alleged by the Trump Administration, is US not granting subsidies to its domestic enterprise? The truth is that subsidy is one of the common tools to address market failure and imbalanced economic development used by worldwide countries including the United States. China’s subsidy situations are all in line with the WTO requirements. Besides, with series laws and regulations, especially the latest legislation on foreign investment, China is striving for better business environment for foreign investors. According to the report of Doing Business 2019 issued by the World Bank, China's overall assessment of the business environment ranked 46 out of 190 economies in the world. Compared with last year, the ranking of convenience of start-up enterprises improved 65 places to No. 28, and over the past five years it has improved 130 places. China has become one of the largest economies in improving the business environment. Therefore, China is in no way intentionally blocking the market access for foreign investors.

Thirdly, the accusation on China’s forced transfer of technologies and other IP rights are typical nonsense. China is always taking firm stance on IPR protection which may be easily inferred from Chinese legislations, policies and judicial practice. During the course of investment and cooperation, China has never forced foreign investor to transfer any technology in exchange of market access. All the cooperation on technology is under fair and voluntary negotiation by and between two sides, and it should be bound by contracts according to the principle of Spirit of Contract.

There is a well-known saying after Trump came to power in 2017 that “the greatest certainty in Trump’s administration has been his personal uncertainty.” Except from the above mentioned accusations, there are still abound crazy ideas and misconceptions held by Trump Administration in many different fields. For example, President Trump once emphasized that the United States' trade deficit is caused by the fact that other countries have made products that belong to the United States. What a ridiculous idea in the economic world. According to such idea, U.S. consumers ought to buy their "Made in America" goods which are much more expensive than those made in other countries. However, it is still unlikely that the trade deficit will change as most of the manufactured products in the United States do not have any advantage compared to other countries' products because those products made in other countries are of good quality and lower price. Besides, with regard to President Trump’s idea on boosting the employment, the US companies that cannot compete with cheap goods made by other countries must either lower their costs or go out of business. Many businesses reduce their costs by outsourcing jobs to other countries. Outsourcing adds to U.S. unemployment.  Also, it should be good for President Trump to understand that his idea of boosting employment by strengthening the trade protectionism would do nothing helpful on promoting employment.

Another big misconception raised by President Trump is his idea of inverse globalization. It is exactly an ambitious attempt without a sense of pitiable limitation. The economic globalization is the objective requirement of the development of social productive forces and the inevitable result of scientific and technological progress. As the world's top two economies, the United States and China should have the responsibility to shoulder the burden of globalization. Trump’s negative attitude toward global and regional trade systems such as the WTO, TPP and NAFTA will be a disaster for the development of the domestic economy of the United States as well as the global economy. Bilateral trade agreement should not be weighed too much, as bilateral trade disputes are easier to be triggered, and it would be complicated to resolve bilateral conflicts when the global or regional trade dispute settlement mechanism is in absence.

Although we are seeing the dawn of a relaxation in China-US trade relations, in the face of enormous uncertainty during Trump's presidency and the trade imbalance caused by the inherent differences on resources between the two countries, China should still be prepared ahead of schedule with a feasible plan to deal with the potential escalation of trade frictions and even the trade war.

China cannot simply reply on reducing exports or the appreciation of the RMB to solve the trade imbalance with the United States. Otherwise, employment in the export sector will be burdensome, and the economy as a whole will be damaged. Also, despite of increasing imports from the United States may increase the choice of consumption types, ensure control over the price and reduce pressure of appreciation of the RMB, China should take multiple approaches simultaneously to solve the trade imbalance between China and the United States.

Facing the uncertainties of economic policies implemented in the United States, China should pay equal attention to internal and external reforms in its future economic development. At present, China is in the 13th Five-Year Plan period. According to the Circular of the Ministry of Commerce on Issuing the 13th Five-Year Plan for the Development of Foreign Trade, during the period of the 13th Five-Year Plan, the international environment and domestic development conditions in respect of the development of foreign trade in China have changed profoundly. China must deeply recognize and accurately grasp the new situation and characteristics of the development of foreign trade, seize opportunities and practically respond to challenges. The 13th Five-Year Plan indicates that China shall take the promotion of the supply-side structural reform as main line, and push forward "The Belt and Road" initiative to lead opening up, vigorously implement the strategy for optimizing imports and exports, speed up the transformation of development modes of foreign trade, adjust structure and change momentums, consolidate and enhance traditional competitive edges of foreign trade, foster new competitive edges of foreign trade centering on technologies, standards, brands, quality and services, advance the change of foreign trade to high quality and favorable prices as well as optimized imports and exports. Recognize that the innovation is the first driving force in leading development, and as such innovation must be put at the core position of the development of foreign trade.

Speaking of China’s internal reform, the traditional low-end labor-intensive industries shall be gradually reduced by outsourcing to regions with lower labor costs such as the Africa and South-East Asia. The proportion of capital-intensive industry shall be increased by utilizing the labor force saved by outsourcing the traditional industries. Also, the production advantage and the output quantity shall both be improved. As well as maintaining the status of the world’s manufacturing factory, China shall improve the production efficiency and product quality so as to upgrade the manufacturing industry. Besides, due to the increasing household income, China is becoming a super international consumer market which drives the rise of service industries. Furthermore, the proportion of processing trade will keep dropping and will be step-by-step withdrawal from the historical stage.

Turning to the external reform ran by China, the key problem for China to ensure the undefeated position in the trade frictions with the United States is whether or not China may maintain its own trade balance, and whether or not China is able to promote trade with other countries and increase imports from other countries. China should strive to establish and maintain regional trade relations, for example, speed up the consultation and negotiation on the Regional Comprehensive Economic Partnership (the “RCEP”) which may help to remove trade barriers between member states and promote trade exchanges and industrial integration among member countries. In addition, through enforcing “The Belt and Road” Initiative, China may increase foreign direct investment, realize the win-win economic situation between China and other countries, enlarge the scale of infrastructure construction and export market of financial industry and strengthen the political, economic and cultural relations between China and the countries along the route of “The Belt and Road” Initiative.