Say no to trade wars
- By Wang Wen
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E-mail Beijing Review, April 11, 2017
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The largest glass fabrication plant in the world, owned by the Fuyao Glass America, in Moraine, Ohio, the United States. Fuyao Glass America is part of Fuyao Industry Group Co. Ltd., a leading international manufacturer of automotive and industrial glass located in China (XINHUA) |
A decade ago, Sara Bongiorni published a book titled A Year Without "Made in China": One Family's True Life Adventure in the Global Economy. It chronicled her American family's experiment with a yearlong "boycott" of Chinese products. The book describes their daily inconveniences and problems—she could not even find a non-Chinese-made candle for her husband's birthday.
Her 4-year-old boy rebelled against his mother's boycott, demanding Chinese-made toys. Bongiorni concluded that without made-in-China products, she and her family would face mounting expenses. The problems became so great that in the following decade she lost her enthusiasm to conduct a second trial of the experiment.
Ten years later, Chinese products are found in more American homes than ever before and the two economies have grown increasingly interdependent. Bilateral trade volume reached $519 billion in 2016, meaning that China and the U.S. are now each other's second largest trading partner. Over the past decade, the goods and services China has provided to the U.S. has increased by 98 percent and 132 percent, respectively.
But on March 31, U.S. President Donald Trump signed two executive orders aiming to reverse the nation's trade deficit. The orders ask for a report on the causes of the trade imbalance and a call for customs agents to collect anti-dumping duties owed to the U.S. According to the 2017 National Trade Estimate Report on Foreign Trade Barriers released on the same day, the country's largest trade deficit was with China, at $347 billion in 2016. Trump intends to increase employment in the U.S. through these measures.
One may find irony here because many have noticed how Trump's suits and ties, his daughter Ivanka's line of shoes, the red caps his supporters wear and even the U.S. flags they wave were all actually made in China.
Some have even joked that it was in Yiwu, a city in east China and an important export hub, where people first successfully predicted Trump's general election victory after noting that orders for Trump's campaign products greatly outnumbered those for Hillary Clinton, his main opponent during their run for office in 2016.
Without a doubt, the significant economic and trade ties that have evolved and underpin China-U.S. relations will not be easily severed, regardless of Trump and his team's rhetoric.
Benefits for the U.S.
Trade between China and the U.S. has created substantial benefits for Americans. Statistics available from the U.S. Bureau of Economic Analysis indicate that the top American export categories to China in 2015 were generally high value-added, bringing substantial profits back to the U.S.
Today, a large number of new jobs in the U.S. are created as a result of exports to China. An Oxford Economics report demonstrates that China-U.S. trade has created 2.6 million jobs in the U.S., equivalent to 4 percent of the votes cast for Trump in the general election. The economic contribution of bilateral trade in the U.S. reached $216 billion, accounting for 1.2 percent of U.S. GDP in 2015.
At the same time, China has consistently made new investments in the U.S., and now holds over $1 trillion in U.S. Treasury bonds (5.5 percent of the total amount of T-bonds). In stark contrast to this is the U.S. lavish expenditure on its defense budget and huge national debt. In Afghanistan and Iraq alone, the U.S. Government has spent more than $1.6 trillion of taxpayer money. China has helped the U.S. maintain its economic and financial stability over more than a decade of war and overspending.
To be frank, the U.S. economy cannot afford the cost of unemployment and price increases for millions of Americans who now benefit from China-U.S. economic ties, and who would lose their jobs and livelihoods as the inevitable consequence of a trade war.
In the future, trade and economic exchange with China can continue to create great value for American consumers. Around $233.8 billion worth of consumer goods (excluding food and cars) were imported from China to the U.S. in 2015. According to Oxford Economics, U.S.-China trade helps each American family save $850 per year. Thus, any economic sanctions the U.S. may levy against China would undermine its own economy by hurting consumers at home.
Furthermore, for hi-tech and high value-added American enterprises, China is an enormous and fast-growing market. An Economist Intelligence Unit report shows that there are now 132 million Chinese people who have more than $10,000 of disposable income, and this figure is estimated to hit 480 million by 2030.
Who would suffer more from a China-U.S. trade war? Some have said that China might lose more in the short term, but in the long run, because of China's economic resilience and high potential for growth and development, the U.S. will suffer more.
There is evidence to support this point of view. Thanks to the U.S. blockade on chip exports to China, for example, China has independently developed a chip industry using its own intellectual property, thus lowering the dependence on imports, causing the market share for the U.S. chip industry to shrink.
So, what sort of China does the U.S. prefer? A China with an open economy, or one forced into protectionism?
We must also take into account that the most significant economic cycle in the world economy today exists between the U.S. and China: As U.S. consumers buy Chinese products, China has more foreign exchange reserves to buy a large amount of U.S. T-bonds.
By investing in China's manufacturing and capital markets, U.S. multinational companies and investors earn profits and bring them back to the U.S. at an average yield many times greater than U.S. T-bonds. This cycle will break down if China is forced to become more protectionist, fundamentally harming the U.S. This is the bottom line that Trump must be mindful of.
Causes for unemployment
The fundamental reason for team Trump's tough stance and rhetoric is that his administration has lost its focus on the U.S. real unemployment problem and its root causes.
Fundamentally, it is a mistake to blame U.S. manufacturing job losses on Chinese products. In fact, these job losses are triggered by evolving technologies, such as artificial intelligence, automated and electronic manufacturing and management. All these technological advancements substantially increase efficiency, productivity and have replaced manufacturing sector jobs.
In 1999, the average labor needed to produce a car was 0.1, but by 2014 this figure was reduced to just 0.07, implying that automation is the culprit behind jobs losses in the automobile industry. Traditional employment-absorbing sectors, such as the automobile, machinery and chemical industries, are growing slowly or even declining in the U.S.
Even if these industries were to leave China, they would not necessarily return to the U.S., and are more likely to end up in other countries. If Trump simply adopts protectionist measures and blames China without considering the influence of technological advancement, he will not only obscure the facts, but also hurt the well-being of the American people.
The trade deficit
But the question remains, how can the U.S.-China trade deficit be reduced? Rather than launching a trade war against Chinese exports, we may look toward America's exports to China for a solution. The U.S. has long imposed strict hi-tech export controls for China.
Nevertheless, China's hi-tech market is expanding rapidly. China's import demand for civil aviation, machine tools, integrated circuits and other high-end products will reach $600 billion by 2020, which is approximately twice the U.S.-China trade deficit in 2015. It is estimated that if the U.S. eases its hi-tech export restrictions on China, China will import as much as $60 billion of these products from the U.S. Facing this huge and rapidly growing market, why doesn't the U.S. loosen control and expand hi-tech exports to China?
It is time for Trump and his team to make a choice. Protectionist actions and tight control over exports in a zero-sum game will get both China and the U.S. into trouble. The other choice is to adopt a more positive export policy toward China that is conducive to achieving a win-win outcome for both parties, and maintaining the beneficial economic cycle shared between the world's two largest economies.
China has contributed greatly to globalization alongside the U.S. But today, while China still strongly reaffirms globalization, some remarks and potential policies of the Trump administration deviate from the irreversible trend of global integration which was set in place by previous U.S. administrations. Again, this will not help Trump to "Make America Great Again," and will only push the great country into troubled waters.
In conclusion, I hope wise Americans will see the harm that a U.S.-China trade war would cause, and at the same time join me in opposing such action.
The author is a professor and executive dean at the Chongyang Institute for Financial Studies, Renmin University of China. The article was first published in the Financial Times on March 27
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