Illustration: Luo Xuan/GT

 

US moves have revealed that the true purpose of the ongoing trade conflict has nothing to do with trade. The real goal is to confine China's technological advancement and economic rise. 

The wicked logic behind increasing tariffs is that they will force China's export manufacturing industries to move out of the country and cripple market competitiveness. Some American elites feel they can decouple China-US trade and economic relations with their country's advantageous technology and tariff policies. 

Foreign trade is a method of product exchange across borders. It is a process in which division of labor goes from domestic to international in an open system. Labor division takes on the shape of a global value chain as a country's exported products are not made by one single country. 

The assembly of an export item involves multiple procedures, with each one adding a different value. Each country relies on its natural endowments and occupies a place on the value chain that makes the best use of its comparative advantage.

An international division of labor will evolve into a foreign trade pattern. Multinational companies serve as the catalyst for this process. China has created advantages in the "three-plus-one trading mix"(custom manufacturing with materials, designs or sample supplied and compensation trade) since the beginning of reform and opening-up. China's machinery exports have gained an edge after joining the WTO. The advantages China gained have reflected the significance of international labor division in reality. Disturbance and any intention to sabotage the rule of law for international trade will be in vain.

Three factors influence the global value chain: productivity based on technological advancement and manufacturing abilities, open markets and public governance, and infrastructure and business logistics standards. After 40 years of reform and opening-up, China's economic development and Chinese companies' international competitiveness have benefitted from the aforementioned factors. 

China has developed through stages of productivity evolution. In the beginning, development relied on inexpensive land and labor. Eventually, scaled production became the main driver. Now, the country is moving toward technological transformation and innovation-driven development. 

China has a strong competitive presence and advantages in terms of the value chain, both vertically and horizontally. The country's nuclear power technology, high-voltage power transmission and distribution, high-speed railway, and aerospace technology have taken the lead worldwide.

China has accelerated the opening of services trade. New measures like market entry and the negative list will soon take effect. Efforts to create a business environment under the rule of law have garnered positive results. Foreign investors are treated equally with domestic investors and their rights are protected in China. The government has been pushing reforms to delegate powers, streamline administrative systems, and optimize government services. 

China's achievements in infrastructure, highways, railways, airports, sea terminals, internet and telecommunications are evident both at home and abroad. Meanwhile, domestic logistics expenses have fallen significantly. 

The three advantages previously mentioned are the basis and source of confidence behind China's manufacturing industry. From this vantage point, any US action that tries to undermine China's manufacturing base by raising tariffs is nothing more than wishful thinking. Such an attempt goes against the laws of market competition and exposes an embarrassing level of ignorance never seen in the modern era.

China has the capability and potential for future development. But the potential has not been fully utilized. The country needs to take the new competitive situations seriously and actively adopt measures to dissolve potential clashes and the impact they could bring with them. 

China should enhance the following policy guidance system: First, it should continue with the supply-side reform, supporting companies with transfers and upgrades to improve quality and efficiency. The government needs to boost competitiveness by cutting taxes and fees. It also can guide the companies to increase their competitive edge and provide training on international trade with markets and product strategies. 

Second, companies should be encouraged to participate in the Belt and Road Initiative (BRI) and exploit new markets. The BRI has become a new model for international economic and trade cooperation. The industrial parks and export processing zones built along the BRI route offers development space for companies. Also, emerging markets have maintained vigorous growth. With economic booms, those markets have broader needs. Markets in Southeast Asia and Eastern Europe can be developed through a mutually beneficial model.

Third, the country should facilitate trade with multiple measures and reduce company burdens by alleviating their operating costs pressure.  

Companies should also take action. First, they should make "high quality" its basic principle and focus on their main business. They need to maintain market shares, implement contingency strategies and adjust to the new competitive environment. 

Second, they should seize the development opportunities in emerging markets and strengthen their abilities to exploit such markets. 

Third, they need to watch closely the domestic market. For products with higher domestic demand, a greater percentage of those products can be sold to the domestic market. Meanwhile, companies can cater to consumer needs for high-end products.

Amid the China-US trade row and the tariff wand the US wields, China should see through their vicious intentions and understand that the US has gone against the trend and is destined for failure. As long as we have confidence and can deal with it, victory will be ours.

The author is former director of the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. bizopinion@globaltimes.com.cn