Rational analyses of U.S. disharmony voice

Despite the fact that the United States has benefited substantially from Sino-U.S. economic and trade ties, it has continued to voice its discontent about China, especially on issues such as China's "excessive" trade surplus and the "undervalued" yuan.

Historical data show China's trade surplus is neither long-lasting nor large. In most of the years China recorded trade surplus, the figures were below 3 percent of GDP. China's trade surplus growth accelerated only after 2005 and compared with other trading powers including Germany and Japan, the surpluses were not large. For example, since 1952, Germany has had 58 years of favorable balance of trade, up to 8 percent of GDP at its highest. Gulf countries have also had a favorable balance of trade for a long time because of their abundant natural resources. Statistical differences have also led to the overrated unfavorable balance of trade of the United States to China.

It is notable that China's trade surplus with the United States does not mean it has damaged the latter's interests. China is not the only one to benefit from the trade. U.S.-based enterprises have acquired most of the added value from products imported from China.

The Cato Institute, a research group based in Washington, D.C., said in a report published in 2010 the division of labor between China and the United States represents a "smile curve." That is, the United States controls high-profit pre-production processes, including trademark and conceptual design as well as post-production services, such as logistics, sales and market development, while China undertakes production and processing, which have low added value.

The United States gets the lion's share from Sino-U.S. trade, said the report. The added value created by China only accounts for one third to a half of China's total export volume to the United States.

Take Apple's iPod digital music player, which is labeled "Made in China" and sold for $299, for example. Manufacturing plants in China get only $4 for assembling, but U.S.-based companies get $160 from designing, logistics and sales, according to an article published in The Economist.

The yuan's exchange rate is another big issue to affect Sino-U.S. trade cooperation. Some people in the United States believe the so-called "undervalued" yuan is the major cause of the trade imbalance between the two economies. They wish to expand U.S. exports and stimulate their domestic economy through the appreciation of the yuan.

Since China began reforming its exchange rate regime in 2005, the yuan climbed 25 percent against the dollar. The yuan has appreciated to a larger extent than the U.S. dollar, the euro, the Japanese yen and the sterling. It is totally groundless to assume U.S. trade deficit against China has anything to do with the yuan's value being underestimated.

From 2005 to 2008, when China's trade surplus rose rapidly, the yuan's exchange rate against the dollar rose 21.2 percent, said He Weiwen, Director of the Sino-U.S. Trade Research Center with the University of International Business and Economics in Beijing. Why does this phenomenon exist if the yuan is undervalued?

In addition to U.S. trade surplus and yuan's exchange rate, anti-dumping and countervailing probes are used by the United States to attack China. Intellectual property protection in China and the country's indigenous innovation policies are also under fire. In recent years, trade disputes between the two economies have emerged quite often. If these problems cannot be addressed, the interests of Chinese manufactures as well as U.S. companies and citizens will be damaged.

An example is that the United States started to impose punitive tariffs on tire imports from China in 2009. What were the consequences, then? Data from the United States indicated the price of U.S.-imported tires increased 30 percent in the first half of 2010, whereas the jobs offered by the U.S. tire industry dropped 10 percent in the first five months of the year.

Meanwhile, the United States controls exports to China in the hi-tech industry. The control causes U.S. companies to lose many opportunities, because China has to import the products from other countries. Chinese data indicated the value of hi-tech imports grew from $64 billion to $309. 85 billion from 2001 to 2009 and the average growth per year was 48 percent. However, the proportion of U.S. products fell from 18.3 percent to 7.5 percent. If the United States had kept the level at 18.3 percent, it would have increased the value of exports to China by $33.5 billion in 2009 alone.