BIZCHINA> Review & Analysis
Sino-US trade war will worsen global crisis
(China Daily)
Updated: 2009-02-06 14:16

There are rising worries among the international community that China and the United States are going to a trade war at a time when the world desperately needs concerted efforts to tackle the escalating global financial crisis.

Related readings:
Sino-US trade war will worsen global crisis FM: China opposes US sanctions on two firms
Sino-US trade war will worsen global crisis Wen warns against protectionism amid financial crisis
Sino-US trade war will worsen global crisis Protectionism rising
Sino-US trade war will worsen global crisis China warns of threat of US protectionism

Sino-US trade war will worsen global crisis Call to combat protectionism

US Treasury Secretary Tim Geithner accused China of currency manipulation in a hearing to the Congress after he took office. To calm official and academic refutations from the Chinese side, the White House later explained that its policy on China's exchange rate is still being studied and yet to be confirmed.

However, the tough stance by the new US treasury chief, whatever motivated it, heralds a possible escalation of long-standing economic frictions between the world's two heavyweight economies in the time ahead.

Given US President Barack Obama's previous stance on China's exchange rate and the nearly unanimous bipartisan consensus on this issue, the new US administration is likely to launch a trade war as a punishment to China. The extent of China's reaction to the US action will directly decide the magnitude of the trade dispute between the two countries.

China will not tolerate US intervention in its exchange rate policymaking, a matter under the jurisdiction of the country's sovereignty. There is an extensive consensus among Chinese decision-makers that even a 40 percent revaluation of the yuan, a long-pushed target by Washington, will not help solve the root issue of the China-US trade imbalance.

Due to its policy momentum and population factor, the possibility remains slim for China to raise the prices of its labor, land and other resources by a large margin in a short period.

Their comparatively cheap prices have served as the key to maintaining a sharp edge of China's products in increasingly fierce international competition. More important, the ballooning trade deficit on the US side is largely attributed to the asymmetrical China-US trade structure and a decades-long ban by the White House on its exports of hi-tech products and weapons to China. No major changes are expected to emerge in the US policy in these regards in the foreseeable future.

Sino-US trade war will worsen global crisis

What the US wants China to do is to take sides with it in the rebuilding of international financial and economic order and to ensure China's wider financial openness to the outside world. The emerging Asian economy is also expected to buy more treasury bonds to support the US economic revival.

All these demands, however, cannot be completely met by China. Therefore, the possibility of a trade war between the two countries cannot be ruled out. But the US administration should be aware that a trade war with the world's largest developing nation would not create any winner at the current moment.

For China's part, such an economic war with the US will result in the decline of its exports and the ensuing bankruptcy of some of its export-bound enterprises. The fact is the country's export has suffered a sharp drop since the second half of last year. And no worse results can be expected in any case.

But the case is different for the US. Without importing cheap and good-quality Chinese products, ordinary US households who have suffered a lot from the ongoing crisis will plunge into a harsher predicament. So far no other countries can replace China's role in daily lives of ordinary American people. Public opinions are expected to press decision-makers in Washington to reconsider their China policy in favor of "made-in-China" products if the trade war breaks out.

Also, the exit of China's products from the US market, which holds only 20 percent of the former's whole export volumes, will not rock the foundation of the Chinese economy. China is trying to develop an internally driven economy.

As the largest creditor of the US national debt, China is estimated to hold 35.4 percent of Washington's government bonds. At a time when its own economy is suffering severe hardships along with a serious fluidity insufficiency, China did not choose to sell US national debts.

This praiseworthy move by China indicates its responsible attitude to developing bilateral ties and its aspiration to stabilize the US as well as the global economy. It is hoped that the US administration will also not take any action aimed at compromising the feelings of Chinese people and its national interests.

In the long run, a trade war with the US may possibly prompt China to develop an economy based not on export and investment but on domestic consumption. Such an economic model will change the country's dependence upon foreign markets for economic growth.

In recent years, China has made great efforts to expand its consumption credit business by adopting a series of sweeping financial reforms. Along with its ever-expanding international payment surplus and declining consumption ratio, China's increasing deposit and investment ratio should be the main factor in its long-established economic model.

These are what the country should try to change. There is no doubt that a possible Sino-US trade war will further worsen China's external economic environment. But an aggravated outside pressure is expected to contribute to the country's pursuit of economic transition with a more reasonable income distribution system and a decreasing application of government power in economic issues.

It is known that trading is a kind of state-to-state reciprocal economic activity. With decades of bilateral economic exchanges, China and the US have set up an interdependent economic relationship that needs joint efforts from both sides to be further cultivated.

[The author Deng Yuwen is an associate senior editor with the Study Times]

(For more biz stories, please visit Industries)