China, US may tide over conflict in long run

By Bao Chuanjian Source:Global Times Published: 2018/9/5 18:48:40

Illustration: Liu Rui/GT

Economists widely agree that the current trade tension between China and the US will not only bring about losses to both sides, but have negative effects on other markets including the EU, Japan and emerging economies. Yet the shadow of a full-blown trade war still looms large. US companies and the public could make comments on the government's proposal of imposing a 10 percent to 25 percent tariff on China's $200 billion worth of exports to the US till Thursday. From then, the controversial proposal will likely become a reality.

At present, China and the US have each imposed tariffs on a package of goods worth $50 billion imported from each other. Both have taken a series of measures to avert a possible economic downturn.

In response to the precision strike by China's tariffs on goods mainly produced in the red states, US President Donald Trump announced in July a $12 billion agricultural subsidy program, whose unilateral rationale would be easily attacked by other WTO members. It is thus small wonder that Trump has even threatened to pull the US out of the WTO. It is noteworthy that the US and Mexico have just reached a trade agreement, which could be used as a buoyant narrative by the Republican Party before the midterm elections in November.

Admittedly, as Professor Barry Naughton at University of California at San Diego said, China's current tactics of tit for tat is largely defensive and reactive. Nonetheless, as a defender of globalization and the multilateral trading system, China has rolled out a series of positive fiscal, monetary and exchange rate policies. The second phase of free trade agreement (FTA) negotiations between China and Pakistan, and FTA talks with Mauritius have been completed recently.

Before the dispute kicked off in earnest in July, economists have warned that tariffs function like a regressive tax which will lead to an increase in price of domestic consumer goods. This will be especially true in the US given its import structure. The tariffs would most probably hurt the intended beneficiaries including low-income households and blue-collar workers.

A recent report by European think tank Bruegel predicts that an all-out trade war will cost each of China, the US and the EU up to 3 to 4 percentage points of GDP in the long run, equivalent to the impact of the 2008 financial crisis. As for the prospects of the trade war, major media outlets in the US such as Foreign Policy, The Atlantic, and The Washington Post believe that the US will end up losing the trade war. Economics Nobel laureate Joseph E. Stiglitz points out that China has clearer goals and strategies and more public support which will put the US at a disadvantage.

The Sino-US trade war reflects a different thinking and response to globalization. In the short term, unilateralism and protectionist economic measures giving wind to domestic populism seem to be effective electoral gambits. However, the trade conflict's long-term damage to the welfare of the people will gradually become visible, although China hawks such as US Trade Representative Robert Lighthizer and White House trade adviser Peter Navarro might be reluctant to admit.

Globalization is so comprehensive and deep into all aspects of people's lives that it is irreversible. China will continue to work hard to promote an open international economic order and fair global governance system. As President Xi Jinping said while meeting with UN Secretary General Antonio Guterres, who came to Beijing to attend the Summit of the Forum on China-Africa Cooperation, China's resolve in comprehensively deepening reform is unchanged and is ready to take concrete actions to unite with all parties to uphold liberalization and facilitation of trade and build an open world economy.

Trump's imposition of tariffs on $200 billion worth of Chinese goods will be a fault line of American politics, and the international response to it could be an important litmus test for the resilience of the generally agreed-upon economic rules.

At the global level, China should continue to bolster the decisive role of the WTO by empowering its enforcement capabilities and constructively partaking in the maintenance, improvement and formulation of international standards. By doing so, China can consolidate the backup from like-minded trade participants for its retaliatory policies. After all, the efficient functioning of the WTO and its Appellate Body is in the interest of most countries including China.

Regionally, China should actively engage in trade dialogues and consultations with a win-win approach, such as promoting the Regional Comprehensive Economic Partnership negotiations. Domestically, China should strengthen technological innovation to seize the initiative in future technological competition.

Even the word cooperation sounds hackneyed but it helped define Sino-US relations in the last few decades and it paid off. We expect that the two largest economies will weather the current predicament and bring cooperation back in through negotiations in the near future given that their mutual interests far outweigh the disadvantages of conflict.

The author is an assistant research fellow with the Central Institute of Party History and Literature.

Posted in: VIEWPOINT

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