China-US trade friction has continuously escalated since the beginning of 2018. After assuming the US presidency, Donald Trump has attempted to curb the general trend of economic globalization, change trade cooperation, and reverse trade deficits. He claims the US has “lost” in “globalization”, and that imports from China have robbed Americans of their jobs. As mid-term elections unfold in the US, he has constantly intensified the trade spat with China out of political considerations. Now what can we expect from China-US relations? Here are brief findings from our research.
First, we believe China-US economic friction is rooted in the fact that profound changes have taken place in the domestic politics and economics in both countries. In the US, while the “elite America” and “traditional America” engage in fierce wrangling and cannot reach any compromise on almost all issues, China is their sole common target. China, on the other hand, has demonstrated a clear development path and institutional arrangements since the Communist Party of China’s 18th National Congress, striding into a new era of socialist modernization. Such changes have led to substantive changes in bilateral ties after Trump assumed office, which is an objective reality we cannot afford to ignore.
Second, both sides need to understand and avoid the worst case scenario. We believe China-US relations will not head towards all-out confrontation, while China can manage the damage from trade friction with the US. One reason is that Chinese and US interests are deeply entwined. For instance, US transnational corporations have important interests in China that are critical to the foundation of their development and China’s support and participation are indispensable for the US to enjoy the dividends of the US dollar hegemony. The second reason is the appeal of the Trump-led “traditional America”, which is having the upper hand at home, and that of the “new-era China” are strategically mutually complementary. That is, the Trump-represented America wants to withdraw from things such as expanding global trade, harnessing climate change, and reforming global governance, while China seeks to participate more actively. The third reason is we believe the Chinese top leadership is capable of drawing lessons from history, precisely managing and controlling any potential provocations from extremists and opportunists.
Third, strategic composure must be maintained in the face of the influences and shocks from China-US economic friction. In the short term, the Chinese side needs to take the initiative and promote cooperation through a limited trade war. It can more than satisfy President Trump’s demands on the matter of US trade deficits in exchange for the latter’s concessions on core Chinese interests. But it must resolutely refuse the unreasonable requests the “elite America” has made in order to hinder China’s economic upgrade. In the long term, the Chinese side should prepare for the long haul, prevent public opinion from amplifying irrational ideas, and at the same time work hard to implement reforms with maximum resolve.
Last, we believe, handled properly, China-US economic friction may give birth to a new pattern of bilateral cooperation. Such a pattern will have three main hallmarks, i.e. “three acceptances” on the part of the US. 1) The US must accept the fact that China and the US have different development paths, and it is impossible for China to follow a Western path of political and economic development. China and the US should seek peaceful co-existence despite their differences. 2) The US must accept the fact that China will play a primary role in its surroundings regions, since China is the most populous country and will soon be the largest economy. 3) The US must accept a new type of leadership from China in improving global governance. This leadership is proactive, aimed at win-win scenarios as well as peaceful co-existence with the US and West despite differences. On the Chinese side, the country needs to be more transparent in the role of the government in promoting economic development and technologic progress and more open to foreign investment and trade. China also needs to articulate even more clearly its core interests and strategic intention in a language accessible to the Western world.
We have confidence that the new pattern of China-US relationship will eventually shape up. It is an essential move for the China dream.
(Excerpted from the “Strategic Report on China-US Economic and Trade Relations”, Center for China in the World Economy (CCWE), Tsinghua University).
