Foreign and Military Affairs

Great benefit for US from Sino-US trade co-op

(chinadaily.com.cn)
Updated: 2011-01-17 18:43

To be rational over biased views

Though having gained huge profit from Sino-US economic and trade relations, the US has been questioning China's favorable balance of trade and the undervaluation of the RMB exchange rate. What are the true facts?

Based on past statistics, China has only had favorable balance of trade for a short time, and it usually accounted for less than 3% of GDP. Only until 2005 did the favorable balance of trade increase. Despite this, the figure was much smaller than that of major trading nations such as Japan and Germany. For example, since 1952, Germany has had 58 years of favorable balance of trade, which was up to 8% of GDP at its highest. Some Gulf countries have also had a favorable balance of trade for a long time because of a lack of resources. Differences over statistics calculation have also led to the overrated unfavorable balance of trade of US to China.

The fact that China has had a favorable balance of trade against the US does not harm the interests of the US. Not only did China profit from it, but US companies also did, because of from the added value of imported products from China.

American think-tank CATO Research Institute pointed out in its report in 2010 that the international division of labor between China and the US is like a "smile curve" –the US has dominated the prophase manufacturing process such as high-profiting trade marks and concept designs, and final phase service including logistics, sales and market developing; while China has only undertaken low added value middle-phase manufacturing. The US is the lion's share from Sino-US trade according to the profitability ratio. The added value of the products which China has made only accounts for 1/3 to 1/2 of the total export volume to the US.

According to the Economist, an iPod tagged "made in China" is sold in developed countries ("America") at $299, of which "Only $4 stays in China with the firms that assemble the devices, …$160 goes to American companies that design, transport and retail iPods."

The foreign exchange rate is another hot issue in Sino-US economic cooperation. Some Americans believe the currency value of Chinese RMB is severely underestimated, and the underestimation is the main cause of imbalance of bilateral trade. They hope that with the RMB's appreciation and the US dollar's depreciation, US exports and the economy will be boosted.

But in fact, RMB exchange rates have increased by about 25% since the reform of the exchange rate regime in 2005. RMB has increased to a larger extent compared to the US dollar, euro, Japanese yen and sterling. It is totally groundless to assume US's trade deficit against China has anything to do with RMB's value being underestimated. China's foreign trade surplus surged from 2005 to 2008, during which time the RMB had appreciated by 21.2% against the US dollar, said He Weiwen, dean of Sino-US Commerce Research Center at University of International Business and Economics. Why does this phenomenon exist if the RMB is underestimated?

There are other cacophonies. The US has repeatedly heckled China with anti-dump and anti-subsidy investigations, protection of IPR and China's policies of indigenous innovation. Many more frictions in bilateral commercial ties have occurred lately. If such problems are not solved, they will have a direct impact on the interests of US companies and US people, as well as hindering the economy of "made in China".

An example is the special protection of tires, launched in 2009 against China. What was the consequence, then? According to data from the US, the price of US-imported tires increased by 30% in the first half of 2010, whereas the jobs offered by its tire industry dropped by 10% in the first five months of the year.

Meanwhile the US controls exports to China in the high technology industry. The control causes US enterprises to lose many opportunities, because China has to import the products from other countries. According to data from China, the value of high technology products imports grew from $ 64 billion to $ 309. 9 billion during 2001-2009 and the average growth per year was 48 percent. However the proportion of US products fell from 18.3 percent to 7.5 percent. If the US keep the level at 18.3 percent, it can increase the value of exports to China by $33.5 billion from 2009.