The recent big volume study US-China 2022 is a major initiative in a systematic, profound study on the past, present and future China-US business relations, a joint result of leading Chinese and American think tanks’ hard work. It will not only provide rich information on the bilateral business relations and much valued perspectives on its future course, but also provide a good methodology to examine this essential relationship in the global context.
A Scientific Analysis of Two-Way Trade and Imbalances
China-US trade is undoubtedly the fastest growing bilateral trade in recent world history. Ever since China joined the World Trade Organization (WTO) in late 2001, two-way trade accelerated unabated. The study examined detailed trade and investment figures from the past 35 years, released both by the Chinese and the American governments, and led to the conclusion that both China and the US have benefited from the growth of trade. What is of value is the approach of historic analysis. It did not stay at a collection of data, but moved a step further to examine the whole scenario from the comparative advantages of each and the resulted trade flows, especially in the context of the whole Asian value chain. The trade pattern and imbalances is well explained with that approach.
According to official US data, the US had a $315.05 billion in merchandise trade deficit with China ($218.91 billion by official Chinese data) in 2012, which is the reason for constant blame by the US that China is taking away American jobs, and for an undervalued RMB. However, if we take further research on the basis of this study, we could find a roughly balanced distribution of benefits between the two countries. According to WTO’s new approach of trade balance based on global value chain, the official trade imbalance between China and the US will shrink by roughly 40%, and a large part of the Chinese exports to the US turns into profit for US multinationals. Also according to the Ministry of Commerce of the People’s Republic of China (MOFCOM), the US had merchandise exports to China of $132.89 billion in 2012, and service exports to China of $24.7 billion in 2011. US multinationals had a sales volume of $228.1 billion to China in 2011. The total reached $385.69 billion. Chinese merchandise exports to the US reached $351.80 billion in 2012, with service exports to the US under $20 billion and minimal local sales in the US, the total is similar to the former aggregated US total. Therefore, an objective, comprehensive and fair analysis of all related aspects in China-US trade will help reach a better understanding and solution to future bilateral trade development.
A Good Prospect for the Next Decade
The US-China 2022 study gives fairly optimistic estimates on trade between the US and China over the next decade. Depending on different conditions, the four scenarios value US merchandise exports to China at $508-580 billion in 2022, roughly 4.5-5 times the current level, creating 1.81 million jobs in the US. Chinese merchandise exports to the US by then are estimated at $800 billion to $1 trillion, more than double 2012’s figures. Each will grow faster than the target country’s expected total GDP growth. In other words, both countries will gain its weight in the other’s total economy. In service trade, US exports to China will vary widely from $104-342 billion, while Chinese exports to the US will reach $38.2-131.2 billion, all in 2022, depending on different scenarios.
AmCham, the American Chamber of Commerce in China, has anticipated that by the year 2038, or the eve of the 50th Anniversary of China-US diplomatic ties, US exports to China will hit $1 trillion. This study had anticipated a much earlier date. It suggests that, by 2022, the figure is very close to the trillion-dollar goal ($612-922.2 billion, merchandise and services combined).
Future Cooperation is Broad Based
The study foresees potential areas for cooperation in agriculture, energy, environment, advance manufacturing, aerospace, banking and finance, and science and technology, based on each country’s development goals and priorities, and its comparative advantages. The study found solid complementariness between China and the US in all those areas. It means that, the new type of relationship between big powers, China and the US, which both governments are working for, will be built on a profound economic basis, following the matching of each country’s development priorities, comparative advantages and complementariness, thus resulting in a win-win for both nations. Hence, we have all the reasons to remain optimistic in the future stable growth of China-US business relationship.
Strategic Mutual Trust and Multilateral Approach Vital for Success
The study has also noted that both countries have to face up to a series of major challenges if they want to bring the vast opportunities into reality. The authors regard the following two challenges, among others, most crucial: strategic mutual trust and the multilateral approach to bilateral trade.
First, strategic mutual distrust does exist and even deepened between the two countries. The prohibition of buying Chinese IT products by four US government agencies, as stipulated in 2013 fiscal year continuing provisions act, is a recent case in point. The much noisy accusations on Chinese cyber espionage and related IP theft by the Obama Administration and related intelligence reports created a very negative environment for bilateral cooperation. The cyber attack accusations in general, and the IP theft accusation in particular, cast dark clouds over the bilateral business relationship. Both China and the US should lose no time to intensify dialogues, both at strategic and working levels, and work together to identify, clarify and take active measures on all those issues. Efforts should be made at government, business and public levels at the same time.
Second, in regards to the multilateral approach to bilateral trade, the two countries should not work at the bilateral level alone, which will certainly not lead to a win-win situation. Instead, the study has tried to examine the bilateral trade prospect in a global context. The next 10 years will see major changes in the world economy and trade. China and the US should continue to work together at the Doha Round and try every means to hit an early harvest at the WTO Bali Ministerial Conference before the end of the year. The US is energetically pushing forward the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), both of which China is not a player. China, on its part, is pushing its own free trade agreement (FTA) agenda, focusing on China-Japan Korea Free Trade Agreement and ASEAN’s Regional Comprehensive Economic Partnership (RCEP) in Asia, both of which the US is not a player to as well. The fundamental goal of FTAs at different bilateral and regional levels is not only to facilitate trade among the member economies, but also to set new world trade rules for the 21 century. Both China and the US should study carefully all the latest developments and try to find a way to work together. Only through cooperation will the US-China bilateral trade relationship be anchored for a lasting win-win situation.
He Weiwen is co-director of the China-US/EU Study Center at the China Association of International Trade.
