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【China Watch】 | 10 suggestions on Sino-US trade friction

Tuesday,Jul 31, 2018

Since the United States imposed tariffs on Chinese goods on July 6, 2018, the bilateral trade friction has been escalating, affecting the prosperity of the global economy. Against this backdrop, the Center for China and Globalization (CCG), a think tank headquartered in Beijing, issued the analysis report “Understanding the Sino-US Trade War: Analyses and Recommendations”on July 24, 2018.

The report is composed of four parts: a comprehensive analysis of the elements that caused the trade imbalance between China and the US, an analysis of motivations for launching the trade war by the Trump administration,10 recommendations and, finally, outlookon economic development in the future.

According to the CCG report, the formation of Sino-US trade deficit root in the following reasons.

First, the structural issue caused by the rapid growth of the global economy. The trade deficit is an inevitable result of the dollar’s dominance of the international monetary system. And in the view of macroeconomics, the US has seen continuous declinein household savings while national debt soaring, which have widened the trade gap. From the perspective of international division of labor and global value chain which determines the Sino-US trade pattern,US export control further widened the trade deficit between China and the US. Second,the traditional, simple statistical methodology has seriously misjudged the trade deficit, as the result is far from the actual situation. The report points out that in the current global value chain, China has the trade surplus, while the bulk of interest surplus is in the US. Third, changes on domestic and international political and economic environment are also an important factor to promoting the trade friction.

As for the motivation of the Trump administration to launch a trade war, the report points out that changes in the domestic political environment of the US, the rapid transformation of the economic structure of both China and the US, and the shifting focus of attention caused by the "competition-cooperation" relationship in the new era are all important factors causing the Sino-US trade friction.

The report points out that the trade war has not any long-term benefits for either country. It will not only affect China’s GDP growth and ongoing reform and economic upgrading, but also greatly offset the significant contribution from Chinese economic growthto the US economic development and employment. And it will also affect the global economic system’s original function and even risk a great depression.

Based on the analysis above, the report by CCG, aiming at defusing the trade war, puts forward the following series of recommendations:

1. Both China and US need to accelerate the restructuring of their own economies, building in the foundation of domestic reform to bring out a joint improvement in the trade imbalance.

2. The way that Sino-US trade is measured should be reformed and updated.

3. China and US should work to expand bilateral trade in services, including tourism, education, exchange of talent, investment migration, infrastructure construction, and e-commerce.

4. All parties should work to restore and strengthen the role of economic ties as a bedrock in the bilateral relationship. This entails working through US multinationals to bring out a return to the track of dialogue and negotiations.

5. Strengthen Sino-US cooperation at the state/municipal level.

6. Appeals and consultation should be carried out within the WTOframework.

7. The US could relax export restrictions, in particular concerning high-tech exports to China for a win-win goal.

8. Revive talks towards the Bilateral Investment Treaty (BIT) or explore a new Sino-US Free Trade Agreement (FTA) to cutinvestment barriers on both sides and further open up markets.

9. Promote free trade via facilitating regional multilateral institutions and mechanisms.

10. Both sides should work to strengthen the role of public diplomacy in facilitating bilateral exchanges.

 

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