President Obama started his second term with a jobless rate of 7.8%, a level deemed unreasonable for his successful re-election. Logically, one of his top priorities is creating jobs, jobs and more jobs.
Stephen Roach, former chief economist at Morgan Stanley, gave a sober estimate of weak economic recovery for the United States in 2013. And described the US’ unemployment problem as “a dangerous signal” for US-China business relations, as China will remain a target for the job losses and factory closings in America.
As the federal deficit is still running high and interest rates have dropped, there isn’t much room for government efforts. The only way left seems to be export expansion. Again, China will be a major target. US exports to China have grown by 59.2% over the past three years and will hit 12% growth per year during 2013 and 2014. Hence, the US must focus on expanding sales to China. While Obama’s second term in the oval office will exert continuous pressure on China’s trade policies, US trade remedies on imports from China can also be expected to intensify.
To aggravate the situation, discord with China’s economic system is gaining momentum in the US and creating a strong strategic distrust. The focus of US-China trade frictions has moved from specific products and sectors to the overall economic system. It is likely the Obama Administration will target China’s whole economic system and government role in the economy, undoubtedly pushing China to further reform toward market competition.
While continuing bilateral consultation, the Obama administration will resort to multilateral and plurilateral trade mechanisms. The US will resort to WTO dispute settlement on individual cases with China, and at the same time, energetically push regional free trade agreements (FTAs), with a framework agreement on the Trans-Pacific Partnership (TPP) by the end of 2013 as the primary objective. Meanwhile, Obama will seek to upgrade the North American Free Trade Agreement (NAFTA) and initiate the Transatlantic Partnership, with a vision of creating a new, advanced template of trade rules for the world. On the other hand, China will uphold the Doha Round at the global level, and promote the Regional Comprehensive Economic Partnership (RCEP) and China-Japan-South Korea FTA talks (CJK) at the regional level. Both China and the US will face a series of complicated inter-active trade decisions and actions.
As Secretary of State, John Kerry will likely bring more cooperative strategies in US-China relations. His recent remarks support more cooperation with China, which will benefit business relations. More explicitly, as the US Senator from Massachusetts, he initiated an accreditation for China’s COSCO, noting its contribution to US job creation with a direct container line in Boston. However, Secretary Kerry’s role remains to be seen, as he will, first of all, represent the fundamental interests of the Obama administration. Therefore, one must be prepared for more frictions or disagreements to come.
China-US business cooperation will grow considerably in the next four years. The Obama administration, while maintaining and even intensifying frictions, will look for more practical cooperation with China, covering two-way trade and investment, finance, Internet services, education and tourism. A prominent field is fast rising cross-border investments. According to Rhodium Group, a New York based consulting company, Chinese direct investment in the US was estimated at $6.5 billion in 2012, breaking the previous record of $5.8 billion in 2010. Conversely, foreign direct investment (FDI) inflows into the US from the EU and Canada both fell by around 50% compared to 5 years before.
Recently, the Committee on Foreign Investment in the United States (CFIUS) cleared CNOOC’s acquisition of Nexen and Wanxiang’s acquisition of A123. Various states are competing with each other for Chinese investments. The political obstacles, while persistent, will not change this general trend. It can be expected that Chinese annual direct investment flows into the US will break $10 billion and total investment stock will hit $50 billion before the end of President Obama’s second term, creating roughly 100,000 American jobs and supporting the development of clean energy and advanced manufacturing. Similarly, US direct investment in China grew by 4.5% in 2012, when China’s total global FDI inflows fell by 3.7%. While General Motors (GM) committed to invest a total of $6.5 billion in the US by 2015, the company invested a total of RMB 13 billion in China in 2012 alone. As the company’s global policy goes, “We build where we sell”. GM’s sales in China hit 2.85 million units in 2012, almost equal to its total sales in the US, Canada and Mexico combined (3.01 million units).
There are good opportunities for cooperation on shale gas, electric vehicles, clean coal burning, air pollution control, biotechnology, smart grid, avionics, high-speed railroad, and more. The astonishingly strong collaboration between leading US and Chinese IT giants on cloud computing and software services are some of the most convincing cases showing wins-wins for both China and the US.
In 2012, China’s global imports hit $1817.8 billion and will replace the US as the world’s largest import market during President Obama’s second term. The huge Chinese market potential will undoubtedly serve as an anchor to bilateral trade. If US exports to China grow by 12% annually over the next 4 years, a total of 143,000 jobs could be created in the United States. Now, the US needs cooperation from China, and vice versa, as cooperation helps promote the economic interests of both countries. In a global value chain to where China and the US are so closely intertwined, solid and practical business cooperation will only lead to more win-win situations for both economies.
He Weiwen is Co-director of the China-US/EU Study Center at the China Association of International Trade.
