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Analysis of the Gains and Losses amid the Recent China-US Trade Friction

Recently, after economic and trade representatives from China and the US agreed to create the conditions and atmosphere to continue to promote the implementation of the first phase of the China–US economic and trade agreement and a clear consensus was reached, the China–US economic and trade friction that had lasted nearly two years has been given a new opportunity for relaxation. However, whether the agreement could be successfully implemented remains uncertain due to the fallout from the continuous spread of the COVID-19 epidemic and the upcoming presidential election. China–US economic and trade relations still confront severe challenges. What are the gains and losses for both sides amid the friction? How will the security of China–US economic and trade relations be guaranteed? Yu Miaojie, Boya Distinguished Professor of Peking University, who is also a Ministry of Education Changjiang Scholar, was invited to give a presentation on this topic at the salon.

Prof. Yu explained the above questions from the perspective of the dynamic evolution of China–US trade friction and how that friction can be understood from the characteristics of China–US trade, and by quantitatively analyzing its impact on the economy of both countries. He said that China–US trade friction went through three rounds with tariffs being imposed five times. With the mounting percentage of consumer goods in products imported from China, commodity prices kept rising, and the China–US friction began to have an increasing impact on people's daily life; therefore, the American public generally started to oppose the Trump administration’s continued imposition of tariffs on Chinese products. Since February 2018, China and the US had 13 rounds of negotiation and reached the first-phase trade deal.

The Trump administration's consistent understanding of China–US economic and trade relations has not changed. Trump believes that trade surpluses are good and trade deficits are bad, that the China-US bilateral trade imbalance is caused by Chinese subsidies or other unfair tariff policies, that the solution to the bilateral trade imbalance can only be achieved by increasing the tariffs on Chinese exports to the US, that China should not export high-tech products to compete with the US in the high value-added market but should stay at the low end of the global value chain, and that the US should maintain its monopoly on the high end of the global value chain.

Prof. Yu expressed his view that none of Trump's four views about China–US trade held water. First, the US bilateral trade deficit is not necessarily a bad thing, and China's big trade surplus is not necessarily a good thing. Second, the imbalance in China–US bilateral trade is caused by the comparative advantages of the two countries' differences in factor endowments. In addition, Trump's claim that China imposes high tariffs is wrong. China's tariffs were relatively high before its accession to the WTO. But after its accession, China has followed WTO regulations well. Third, economic and trade cooperation is the right way to solve a bilateral trade imbalance. It is unreasonable that Trump chose to impose high tariffs on Chinese products as a solution because if any sovereign country imposes high tariffs on another, the other will take countermeasures as a response. Fourth, it is a standard historical nihilistic view to keep China at the low end of the global value chain.

With regard to the friction's impact on China-US relations in the future, he opined that, first, the RMB will appreciate in the long run. Second, the friction between China and the US will inevitably intensify because the US clearly regards China as a strategic competitor. Thus, China should respond with determination, rationality, advantage, and restraint, and know that "struggle for peace will lead to peace." After Trump took office, China–US economic and trade frictions have continuously escalated. If a full-scale trade war is launched, it will have a more obvious negative impact on the US. China’s best response is to expand its opening-up, maintain its strategic determination, and do its own business well.