Actually, the real trade surplus between China and the United States is only 100 billion US dollar. If the US relaxes its restrictions on exporting high-tech exports to China, the 100 billion surplus will no long exist, maybe a trade deficit will even occur.
Recently, the US President Trump announced that he will impose a global tariff of 25% and 10% on imported steel and aluminum. Subsequently, the European Union stated that it is considering to impose a 25% tariff on the US imported goods of US$3.5 billion and come up with the retaliation list against the US trade.
All the sudden, the global economic and trade relations have become very tense and even the WTO Director-General Roberto Azevedo used the word “trade war” in a statement.
According to the data provided by the General Administration of Customs (GAC), China’s trade surplus with the United States in 2017 expanded to 275.8 billion US dollar, setting a new historical record. Liu He, the Politburo member of the CPC Central Committee, director of the Leading Group on Financial and Economic Affairs, and Chinese leader of the China-US Comprehensive Economic Dialogue (CED) has just finished his visit to the United States recently.
How to treat the sudden tension in the international economic and trade relations? Is a trade war possible? How will the domestic moderate group affect the US economic and trade policies? How will China respond? What kind of signal can we get from Liu He’s visit to the United States? Will the enlarged China-US trade surplus lead to further tension in the China-US economic and trade relations? With these questions in mind, the 21st Century Business Herald reporter (hereinafter referred to as “21st Century”) had an exclusive interview with Mr. Wei Jianguo, Vice Chairman of the China Center for International Economic Exchanges and former Vice Minister of Commerce.
The Foreplay of the Trade War
“21st Century”: Recently, the US president Trump announced that he will impose global tariffs on imported steel and aluminum, and the EU said that it is considering retaliation measures. How should we look at the sudden tension in international economic and trade relations?
Wei Jianguo: Regarding the global tariffs imposed by the United States on imported steel products and aluminum, some scholars believe that this will have little impact on China because China is not one of the top ten exporters of steel and aluminum. Therefore, China does not have to worry about it, however, I do not think so.
Apparently, this tariff is mainly against the EU, Canada, and other regions but actually, this can be seen as a test of the US before launching a global trade war. Therefore, China can not exclude itself from this trade war.
Looking back at the previous presidents of the United States, we can see that the United States is changing from free trade to trade protectionism, and the situation is getting worse. From Clinton to Obama, the United States has turned from free trade to fair trade, and Trump made things worse than his predecessors. He has not only proposed fair trade, but also reciprocal trade and the newly-imposed tax on steel and aluminum was initiated on the basis of reciprocal trade.
In Trump’s view, no one can take advantage of the US, regardless developing country or developed country. So long as the trade is not reciprocal, the US will take action against it, no matter who you are, an important trading partner or alliance. A few years ago, he attacked Japan and South Korea by imposing tariffs on imported solar panels and large washing machines.
Unlike his predecessor, Trump is not afraid of trade retaliation. This can easily lead to an escalation of the trade war. If the trade war starts and escalates, it will be difficult for China cannot be immune from it.
“21st Century”: Does Trump have the motivation to launch a trade war? Is he attempted to increase his bargaining power in the trade negotiations by launching a trade war?
Wei Jianguo: We should not simply consider Trump as merely a pragmatic businessman. Indeed, there are opinions that Trump wants to bluff his opponents before starting to bargain. I do not agree with this view because Trump is not such kind of person. I think that this is a meticulous arrangement, and he may continue to follow the road of reciprocal trade and start trade wars around the world.
Trump said on Twitter that trade war is good and it is easy to win the war. He also said that when we lose 100 billion US dollar in trade with a country, we can simply win the trade war by simply stopping trading with them.
I think that he will start the trade wars because of three reasons. First, the US economy has improved recently. The three major indices of the US economy are promising, the number of unemployed people has continued to fall, the Federal Reserve has started to raise interest rates, and the domestic situation is relatively stable. Second, unlike his predecessors, Trump has kept some of the promises he made during his election campaign since he took office, including the controversial commitments such as building a wall along the border with Mexico reforming the immigration policy. The trade war is also a selling point of his election campaign. Lastly, many people claim that Trump’s move is opposed by the elites of the Democratic and Republican parties but actually, his actions are supported by the lower-middle class voters in the United States and some multinational companies.
“21st Century”: The recent resignation of Cohen, Director of the White House National Economic Council indicates that there are now fewer people within the Trump administration oppose trade protectionism. What impact will this have on the US economic and trade policies?
Wei Jianguo: Cohen often makes some neutral explanations for America First. He stressed that America First does not mean that the US will act alone, the United States still needs to take care of its partners and allies.
Moderate members like Cohen are gradually giving place to the present US Commerce Secretary Ross, trade representative Lighthizer, and Navarro, director of the Office of Trade and Industry Policy. All the three people tend to adopt a tougher policy and arguing that measures should be taken to punish those countries that do not have reciprocal trade with the US. With Cohen’s departure, 2018 is bound to be an uncertain year.
Liu He’s Visit to the United States was Successful
“21st Century”: Trump administration keeps giving other countries a hard time, how should China respond? How do you see the development of the China-US economic and trade relations? Do you have any suggestions?
Wei Jianguo: First of all, China must try to win as many friends as possible and should act differently from Trump. It should pursue fairness and justice in the interest of the vast majority of victims. China is also a victim of unfairness, the world belongs to everyone, and thus everyone has the right to fight for themselves under the WTO framework. At the same time, China must assume the responsibility of maintaining the world’s trade order and prevent the global economy from going backward because of trade protection.
The US-China relationship is not a 100-meter sprint race, but a long race. China must use various channels and methods, especially the high-level ones to send Trump some correct information and ideas so that he will not misjudge the situation. In fact, the People around Trump have already made a wrong judgment on the global situation.
We must prepare for any further trade protection measures which might be adopted by Trump. In fact, the Ministry of Foreign Affairs and the Ministry of Commerce have already made it clear, China will take corresponding trade countermeasure if the US compromise China’s core interests.
China should stay calm and maintain its strategic strength. When necessary, it should make some tactical compromises, no matter what, it will defend its strategic interests. We must regard the economic and trade relations as the ballast stone and propellers of the US-China relations, rather than an uncertain land mine.
On the whole, we should not let the trade disputes affect the economic and trade relations between China and the United States, in particular, we should not allow the US-China economic and trade relations to affect other of US-China relations.
“21st Century”: Liu He, Politburo member of the CPC Central Committee, director of the Central Leading Office on Financial and Economic Affairs, and Chinese leader of the China-US Comprehensive Economic Dialogue (CED) has just ended his visit to the United States. Can you talk about the significance of Liu He’s visit to the United States?
Wei Jianguo: Liu He’s visit is successful because he found the right department at a critical moment, and proposed the right solution.
First of all, it is important for China and the United States to maintain adequate communication and establish an effective dialogue mechanism to avoid misjudging the situation. This is also the responsibility of Liu He’s visit.
The United States also attached great importance to Liu He’s visit. During his visit, Liu He and US Treasury Secretary Mukuchin, Director of the White House National Economic Committee Cohen, and the Trade Representative Lighthizer discussed trade cooperation and other important issues. In my view, this kind of high-level communication is very important.
The Chinese side proposed that the US should have a single liaison. Liu He’s visit will play an important role in restoring the effective communication channel and dialogue mechanism between China and the United States. He has done an excellent job because the restoration of such a mechanism will lay a vital foundation for the development of US-China relations.
I believe that the China-US comprehensive economic dialogue will be launched very soon. As the two sides continue to maintain close communication, this dialogue mechanism is expected to be further improved. I believe that further communication will be conducted in this regard after the two sessions, the two sides will propose some short-term and mid-to-long-term goals.
Addressing the Trade Deficit and Market Economy Status Properly
“21st Century”: The US Trade Representative’s office recently released the “2018 Trade Policy Agenda and 2017 Annual Report”, accusing China of distorting the market and rejecting China’s market economy status. What is your comment on this?
Wei Jianguo: First, the United States prejudiced China’s state-owned enterprises. It believes that the Chinese government has increased the competitiveness of state-owned enterprises through subsidies and other forms, and hence the US companies have been disadvantaged because they have not received subsidies from the government.
The actual situation is not like this. China supports the state-owned enterprises in technological innovation through open and transparent practices, and there are no policy subsidies.
Indeed, China’s state-owned enterprises need reform. At present, the transparency of Chinese state-owned enterprises is not good enough and many problems remain to be unresolved within the state-owned enterprises, especially the resolutions of the board of directors. The government should further reduce its intervention on the market should also be further reduced, which is the main direction of China’s reform.
With the further reform and opening up, China is moving rapidly toward marketization. In fact, China is a market economy because it allows the market to determine the allocation of resources, which is why China has become the second largest economy in the world.
It should be noted that the United States does not recognize China’s market economy status due to its complex mentality. First, the rejection of China’s market economy status will allow the US to easily launch the anti-dumping investigation, for example, the 201, 301, and 232 investigations were launched on the pretext that China has harmed America’s core interests, thus arbitrarily raising tariffs.
Second, the rejection of China’s market economy status reflects America’s prejudice and calculation. Although China’s rise is peaceful, the United States regards China as a competitor. China’s development model and system have already been widely recognized by some countries, however, the United States has encountered many problems and thus, the United States wants to discredit China’s reforms and make itself look better.
“21st Century”: According to the General Administration of Customs, China’s trade surplus with the United States expanded to 275.8 billion dollar in 2017, setting a new historical record. Will the enlarged trade surplus lead to further tension in US-China economic and trade relations?
Wei Jianguo: It should be noted that among all America’s trading partners, U.S. exports to China is faster than any other countries. The current U.S. export growth to China is about 15%, while the U.S. export growth to other countries is only 6.7%. China is the world’s largest consumer market, which is very attractive to the United States. If the United States lose this huge market because of the trade war, it will be the biggest loss to the United States.
From a structural point of view, the US-China trade surplus is largely caused by the processing trade. Many countries produce spare parts or semi-products in their own countries and assemble them in China. In fact, China only earns a small part of the processing fees. At present, China’s processing trade still accounts for 30% of the total trade, and the old rules “country of origin” is unfair to China.
In fact, the real trade surplus between China and the United States is only 100 billion dollar. If the United States relaxes its restrictions on exporting high-tech products to China, the 100 billion surplus will disappear, and even a deficit will occur.
At present, the United States still view the high-tech exports to China with cold war mentality. As a matter of fact, such kind of restriction has forced China to form its own high-tech industry. As a result, the United States not only lost the Chinese market, but also face strong competitors.
As for the trade surplus, China’s attitude is very different from the United States. China has never actively pursued a surplus, and it is actively reducing its trade surplus. Last year, China opened up its import of US beef, rice and other products.