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Sino-US relations mean growth, peace & friendship

By Xu Chen | China Daily USA | Updated: 2018-04-05 05:40

US President Trump recently announced that the US government will levy tariffs on Chinese imports totaling $60 billion, triggering both domestic and global concerns relating to trade policies and the potential for a trade war between the US and China. As CEO of the Bank of China USA and chairman of the China General Chamber of Commerce, I would like to share my modest views on Sino-US economic and trade and offer a few suggestions.

To better understand the US trade deficit with China, one first needs to analyze the foundational structure and interconnectivity among all the relative factors relating to the trade deficit.

The US deficit as a whole cannot only be defined by the level of Sino-US trade, but is rather a direct result of its domestic demand-driven economic structure, or in simple terms, the aggregate demand is simply greater than the aggregate supply for society. Over the past 20 years, the US economy has been characterized by higher rates of consumption coupled with lower rates of savings. US total savings accounted for approximately 18 percent of GDP, 6 percentage points lower than the world average; while its total consumption accounted for 82 percent of GDP. According to traditional Chinese medicine, there is a concept of "applying the appropriate antidote to treat the root cause of the disease".

Secondly, a trade deficit, to a certain level, is a necessary precursor for the US dollar to play its role as an effective global reserve-currency.

According to current SWIFT statistics, US dollar-based transactions occupy approximately 40 percent amongst all international payments. Often times, the dollars must first be acquired through exchanges and the global exchange of goods and services. Therefore, the supplier of global reserve currencies, such as the US, needs to tolerate a certain degree of trade deficits to provide a sustainable supply of US dollars.

The US dollar as a global reserve currency, on the one hand, contains certain costs and can be burdensome to the US economy. On the other hand, this phenomenon has brought tremendous benefits to its own economy and consumers.

Thirdly, the Sino-US trade deficit in the context of globalization.

Trade between China and the US has been identified in many spheres as imbalanced. However, the markets have played a far greater role with respect to how these two complementary economic powers behave in cross-border transactions.

According to data from the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, more than 50 percent of China's trade surplus with the US has come from US-branded goods, including the shipments of Apple products.

If we use value-added approach to calculate the trade deficit, only 16.4 percent actually can be attributed to China. Therefore, China's trade surplus with the United States is in fact very much overstated.

Finally, protectionism hurts American consumers, especially those in low- and middle-income households. They have benefited enormously from a long period of lower inflation. US punitive tariff measures, in my view, will have a significantly higher impact on both American businesses and consumers.

The imposition of additional tariffs on goods imported from China will equate to nothing but a tax on American consumers.

According to reports, due to the increase in tariffs on steel and aluminum, the average sale price of US cars will rise by 1 percent, an estimated $300 per vehicle.

The United States has implemented accommodative monetary policy for more than 20 years without the occurrence of hyperinflation. The global US dollar market has played an important role due to its incorporation and absorption worldwide.

As a result of this surplus under the current account, China has also become the dominant holder of US Treasury bonds. In recent years, direct investment by Chinese companies into the US has also grown rapidly, accumulating more than $100 billion in total and creating jobs for more than 200,000 Americans.

I suggest the US government instead consider seriously the following issues: 1) In what ways the US can sustain its competitive advantages for its industries and how can the US attract more foreign investment under the capital account to offset the current account trade deficit, which will result in creating more local jobs? And 2) How to further enforce service trade and leading advantages in Hi-Tech? It makes little sense for the US to try and compete with other countries in terms of high-pollution and low-value-added industries.

History has shown that the establishment of economic and trade relations between our two countries began far earlier than the establishment of official diplomatic relations.

Constructive economic and trade exchanges have not only promoted economic prosperity and development between the US and China, but also enhanced communications between our citizens for over 200 years. The stable development of China-US economic and trade relations in the new era can only be built on mutual respect and mutual benefits.

China and the US can always compete with one another, but proven cooperation will certainly lead to far greater results. A healthy, consistent and stable Sino-US economic and trade relationship will undoubtedly allow the people of both countries to reap the benefits and create many more opportunities for sustainable economic growth, peace and friendship!

The author is CGCC-USA chairman.

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