US needs to put more into trade ties with China

By Bai Ming Source:Global Times Published: 2017/12/6 20:28:39

Illustration: Peter C. Espina/GT



 

On November 24, China decided to cut the import tariffs on 187 consumer goods, starting from December 1, 2017. The reduction covers a wide range of consumer goods such as food and baby milk formula. The average tax rate on these items will drop from 17.3 percent to 7.7 percent.

Many countries, especially the US, will benefit from the tariff cut. And since the US manufactures more high-end products, the exports of these products are expected to expand even more. Also, multinational corporations like US-based P&G with its personal and household care products, and Switzerland-based Nestle with its baby food products are set to gain from this policy.

China showed good will during US President Donald Trump's China trip in November 2017, with 34 deals worth a total of $253.5 billion signed to foster trade and economic cooperation. The amount is roughly equal to the US trade deficit with China in 2016.

China also decided to allow foreign investors to own up to 51 percent of domestic securities firms, investment managers and life insurance providers. But the US position appears to be that this concession was too little, too late

The US would like to see China open up and provide more access for US firms. But the US will never be satisfied, and it continues to threaten trade protectionism to gain as many concessions as possible.

The trade imbalance between China and the US is more to do with the US side. It is not that China does not want to buy from the US - the problem is that the US does not want to sell, especially its high-tech products. When it comes to trade, China has an advantage in amount but not value. The exports from China are more based on labor-intensive industry, low added value and thin margins. The US, on the other hand, exports products with high added value such as airplanes, cars and integrated circuits, gaining large profits even from the limited amount of these products that it exports.

In terms of China's opening-up, the pace should be based on the development of industries in China rather than following the timetable set by the US. US financial companies are expanding in China but the US still operates screening systems to scrutinize overseas investment in the US, especially investment from China.

The US needs to put in more effort on US-China trade, and it should give China equal access to its high-tech products. Take computer chips as an example; Lattice Semiconductor is one of a few manufacturers that make programmable computer chips mainly for civil use. In September this year, Trump blocked the acquisition of Lattice by a Chinese investment fund. In a similar previous case, the Committee on Foreign Investment in the US blocked Tsinghua Unigroup's deal with another US-based chip company.

The essence of free trade is giving each other more options and not intervening in economic activities for the sake of political reasons. In 2012, the US House of Representatives Security Committee issued a report suggesting limiting the operations of Chinese tech companies Huawei and ZTE. Since then, the US government has imposed restrictions on the two companies and conducted investigations into their international trade practices, causing their business to be disrupted. Also, the investigation process has not been transparent and "national security concerns" is too vague an explanation.

A bill to review China's financial service industry requirements was introduced in the US early in November, aiming to limit the investment and merger and acquisition activities of Chinese firms. This shows that the US perspective on trade is based on protectionism and selfish motives, not on market economy values. This could lead to a trade war between the US and China, and an interruption of the two nations' mutually beneficial relationship.

A trade war would drag down the economies of both sides, the US in particular. China is the largest market for US planes and soybeans and the second-largest market for US automobiles, integrated circuits and cotton. A trade war with China will hurt US farmers and workers, and these are the people who Trump claims he wants to protect.

The author is a research fellow at the Chinese Academy of International Trade and Economic Cooperation. bizopinion@globaltimes.com.cn



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