Sino-US friction won’t reach all-out confrontation

Source:Global Times Published: 2018/8/7 23:03:40

Illustration: Luo Xuan/GT

Trade friction between China and the US has escalated throughout 2018. After being sworn in as US president, Donald Trump has attempted to arrest the trend of economic globalization, refashion trade cooperation and reverse trade deficits.

Trump has claimed that the US has lost out from globalization as Chinese imports have cost US jobs. As the US midterm elections approach, political motives are leading Trump to continue provoking trade disputes with China.

There's a wide spectrum of views regarding the next moves in the China-US trade relationship. Some reckon the two nations are headed toward a full-blown confrontation while some voice concerns that the outcome of the trade war will have an unbearable impact on China's economic growth.

But to be realistic, China and the US won't be entirely at loggerheads. Bilateral trade won't fall to zero and the two nations are not headed toward a new cold war or even a hot war.

China-US economic and trade ties are hardly a zero-sum game. The two economies are instead deeply interrelated and mutually dependent. Under the current global economic system, the inextricable connection between the two economies has been enabled by three major conduits: international trade, investment and human capital flows.

The two nations both import large amounts of goods and services from each other and the figures in both directions are impressive. Last year, China's merchandise exports to the US totaled $429.8 billion, accounting for 19 percent of China's total goods exports, while US exports to China reached $153.9 billion, representing 10 percent of its exports. Meanwhile, bilateral services trade has also been expanding rapidly.

Both countries also have considerable direct and indirect investments in each other's market. In 2015, for instance, US companies operating in the Chinese market recorded sales income of $517 billion and posted more than $36 billion in profits.

Chinese businesses made relatively smaller direct investments in the US prior to the global financial crisis, but ever since they have invested more in the US. By the end of 2016, cumulative investment by Chinese businesses, which had a presence in 46 of the 50 US states, had reached $109 billion.

Furthermore, there's much movement of people between the two nations. In 2016, the number of Chinese studying in the US hit 353,000, which represented 34 percent of all international students in the US. There have also been more Americans coming to China for education and tourism.

Along with these movements of people has come a gradual reduction in China's merchandise trade with the US, while the merchandise trade deficit with China as a percentage of US GDP has been on an uptrend over the past 20 years.

Although China's trade surplus with the US continues to widen and the US remains China's top trading partner - meaning that the trade war will undoubtedly have an impact on China's external trade and its economy - the nation's obviously reduced trade dependence on the US shows that China has diversified its trading partners.

The US government is well aware that the two economies are co-existent. With China's declining reliance on US trade, the so-called trade, financial and technology wars provoked by the US will only end up hurting the US economy.

If the US does slap tariffs on up to $450 billion worth of Chinese imports as the Trump administration has threatened, the US economy will take a calamitous hit, which would be tantamount to a political suicide. Tariffs of that scale would greatly raise living costs in the US and reduce consumers' choices. The tariffs will also increase the operating costs of US companies and have a huge impact on the recovery of the US economy, offsetting the positive effects of all other economic stimulus policies. At that point, even Trump's most loyal supporters will change their minds.

In financial terms, the US is the biggest beneficiary of the international monetary system and it has established the hegemony of the US dollar. Its moves toward dollar-denominated assets held by China are thus being closely watched by global investors.

If it goes to extreme lengths to restrict China's yuan-denominated holdings, there will be a big impact on market confidence regarding US assets and the financial system, to the detriment of the dollar's public creditworthiness.

If that happens, the US will experience capital flight or a sell-off of dollar assets, an unlikely choice for the US government, which has long emphasized its financial status.

The Trump administration's attempts to block China's technological development and put limits on technological talent seeking to study in the US, on the grounds of national security, also makes no sense. China won't agree on unreasonable terms proposed by the US, but it will instead work with other countries to jointly push for technological advancement and industry upgrading.

It will also be the case that such limits will have a negative impact on the US' own technological development, so they will be boycotted by the US technology industry and intellectual circles.

All these moves are merely doomed and futile efforts.

The article was compiled based on a report by a research team of the Center for China in the World Economy (CCWE) at Tsinghua University, led by CCWE Director Li Daokui.


blog comments powered by Disqus