Chinese and US leaders are about to meet at the G20 to try and resolve the damaging trade war. At this critical moment, on June 27, the Center for China and Globalization (CCG) released the latest in a series of reports on the China-US trade war, entitled Prospects for China-US Trade: Seeking a rational resolution via the “Argentina Consensus”. Based on analysis of China-US economic relations and the impact of the trade war, the report offers concrete solutions to find a way out of the dispute.
The report covers problems with the way the trade deficit is currently measured, negative impacts of the trade war, US voices calling for a resolution, and China’s efforts to improve the foreign investment environment. The report calls for both sides to seize the opportunity of the Osaka Summit to revive the consensus reached in Argentina. Advocating a return to rational negotiations, the report also proposes ten recommendations to improve China-US trade talks and relations.
On June 28, President Xi Jinping and President Donald Trump both arrived in Osaka, Japan for the G20. They will meet to exchange views on fundamental issues concerning the development of China-US relations. This has drawn massive attention from around the world to see how the next chapter of the China-US trade dispute will unfold.
In their last meeting at the G20 held in Argentina, President Xi and President Trump reached a consensus to refrain from imposing new tariffs. However, after the eleventh round of negotiations, the China-US trade talks again took a twist for the unexpected.
China and the US are the world’s two largest economies. Their trade war not only harms their economies, but also has an increasingly negative effect on the global economy. The two great powers have a responsibility to seize this opportunity during the meeting at the G20 to set negotiations back on track, return to the “Argentina Consensus,” and negotiate a timely end to the trade war.
Based on in-depth research and a series of Track II diplomacy visits to the US, in its latest report on the trade dispute, CCG maps out concrete measures to revive talks and guide relations between China and the US back to a healthy trajectory.
Report addresses key issues
The report points out that current methods used to measure trade result in a major overvaluation of US-China trade deficit. The difference in methods used by China and the US also causes considerably different valuations of bilateral trade. Analytical models based on outdated ideas of trade and traditional customs measurements risk misrepresenting the realities of modern international trade and national interest, inflaming domestic anxieties about the US-China trade deficit in the US.
Therefore, the report suggests that measurements should be improved to more accurately and fairly reflect the value gained by both countries, including trade in services, tourism, and study abroad. These areas are currently are neglected by both governments.
The report also analyses how potential damage of China-US decoupling has stirred opposition to trade war, including 1) how the trade war hurts US economic interests and people’s livelihoods; 2) the chorus of US voices calling for a truce; 3）how the trade war slows China's growth rate and structural rebalancing；4）how the trade war hurts the global economy.
For example, if the US imposes threatened tariffs of 25% on all Chinese exports, the US think tank Trade Partnership estimates that US GDP will decrease by 1.01%, employment will reduce by 2.16 million, and that costs for an average family of four will go up by $2,294 per year.
China’s economy will also suffer. Apart from causing downwards pressure on growth, the dispute is an extra headwind for structural supply-side reforms as China seeks to navigate economic rebalancing and deceleration.
Furthermore, the IMF’s latest World Economic Outlook has lowered the global GDP growth forecast from 3.6% last year to 3.3% in 2019, warning that trade tensions are a major threat to the world economy.
The report also points out that there are some misunderstandings of China’s internal mechanisms in the US and the US should realize that China is in a process of addressing concerns since the start of the trade frictions.
For example, China is undertaking an ongoing opening of market access. Moreover, in 2019, at the National People's Congress, China’s Foreign Investment Law (FIL) was passed. The law safeguards the interests of foreign investors in China. Besides rises of imports, a series of tariff reduction measure are also sending a positive signal on China’s continued opening-up.
In the last part of the report, CCG makes ten recommendations to aid negotiations and help build a more cooperative China-US relationship, which are:
1. Advance dialogue and communication about the China-US trade talks, calling for a return to the "Argentine Consensus" at the upcoming US-China summit at the G20;
2. Improve accounting methods for China-US trade to more accurately and fairly reflect the value gained by both countries, including trade in services, tourism, and study abroad;
3. Increase purchases of US imports while the US ease the export control and lift the ban on Huawei to jointly mitigate the impact of China-US trade frictions;
4. Improve implementation details for China’s Foreign Investment Law, boost actions to attract foreign investment, and address US concerns about Chinese legal issues;
5. Continue to uphold the multilateral trade system, use multilateral cooperation to promote WTO reform, and evaluate the opportunity for China to join the CPTPP;
6. Conduct an in-depth study of “zero tariffs, zero barriers, zero subsidies” to explore how to use a high-level of openness to promote economic globalization;
7. Strengthen further ties between Chinese and US businesses to prevent decoupling;
8. Strengthen measures to protect IP and increase efforts to crack down on IP infringement;
9. Enhance the role of “sub-national diplomacy” by actively strengthening cooperation with US state and municipal governments;
10. Strengthen China-US people-to-people relations and enhance non-governmental diplomacy.
At the beginning of May, the Center for China and Globalization expert delegation, whilst in the US conducting “track II diplomacy” activities, visited several think tanks and research institutions to promote greater bilateral understanding.