The trade conflict between the US and China has quickly escalated. Donald Trump said he was ready to impose additional tariffs on Chinese imports worth 505 billion US dollars. The Chinese government immediately fought back to promise that China would retaliate by imposing higher tariffs on US goods.
While trade war is eye-catching, it is rather misleading to narrowly focus on trade balance when we discuss China-US ties. Accurately understanding the relationship between these two countries requires us to get beyond the trade war and to see the larger picture behind it.
History often repeats itself. In the 1970s and 1980s, the rising Japanese economy led to the popular accusation of a “Japan Threat” from the US side. Thirty years later, we could simply replace Japan with China.
Thus, the big picture behind the current trade war between China and the US is the relative shift in the national economic power of the two countries, that is, the relative rise of China.
Over the past four decades, China has experienced an astonishing “growth miracle,” with an average annual real GDP growth rate of more than nine percent. According to IMF data, China’s PPP based GDP as a share of the world’s total increased from 2.32 percent in 1980 to 18.23 percent in 2017.
Meanwhile, the US` GDP share decreased from 21.68 percent to 15.26 percent. China’s achievements have caused US politicians to consider China as a rival. As some critics have argued, the current trade war belongs to a set of strategies centered on “containing China.”
Given the large trade deficit with China, as a starting point, tariffs on Chinese imports is easily understandable and quickly implementable, quite different from other public policies.
However, just as misleading as merely focusing on trade, it is wrong to exaggerate the conflicts of national interests between them. The trade war is surely doomed to be a case of lose-lose for both countries. So are other types of conflicts. On the other hand, like the classic concept of comparative advantage in economics, both countries could benefit from reconciliation and cooperation.
What are feasible ways to seek reconciliation? First of all, we should establish more accurate trade statistics to replace the current concept of trade surplus and deficit. The traditional statistics of trade based on the gross value are misleading. They cannot display the real picture of production or the actual allocation of value added among countries, but only cause trade disputes.
Take the iPhone for an example. Since the product is assembled in China, the whole value is counted as China’s exports. However, much of the iPhone`s value is added by the designers and engineers across the world.
According to some estimates, China’s total exports make up at least 30-35 percent of foreign value added. Thus, clearly calculating the global value chain contribution to products are necessary in mitigating trade conflicts from the very beginning.
Moreover, we should promote the cooperation between China and the US to accelerate the process of opening up the Chinese economy. For example, as China relaxes its ownership percentage restrictions for the automobile industry, Tesla announced it would build its first overseas plant in China.
There are many other areas where two countries could cooperate, such as agricultural products, infrastructure, energy and more. A prosperous China is not only good for Chinese people but also good for the whole world, including the US.