China Center for International Economic Exchanges

Chen Wenling: Behind the China-US Trade Friction is the US Fear of China’s Development
Date:Apr 10,2018    Source:CCIEE

In the early morning of April 4, the U.S. government announced that it would impose a tariff of 25% on more than 1,300 kinds of imported products originating in China, involving about 50 billion US dollar of Chinese exports to the United States. In response, China immediately announced in the afternoon that it will levy a 25% tariff on 14 categories of 106 products such as soybeans, automobiles, and chemical products originating in the United States, worth approximately 50 billion. In the early morning of April 6, the US President Trump issued a tweet, saying that the US is considering to tax 100 billion US dollar of Chinese imports and again, China made it clear that it will not hesitate to fight back. What is the motivation and reason behind the escalating trade friction? To answer his questions, “China Today” interviewed Ms. Chen Wenling, Chief Economist of the China Center for International Economic Exchanges.

This trade friction reflects the strategic shift of the United States in economy and trade. All of the five reports issued by the United States recently indicate the strategic shift of the United States, including the US security strategy report and the nuclear threat report. Previously, counter-terrorism issue was the top priority of the US national strategy and later on, a worldwide consensus has been reached in this aspect. Followed by the denuclearization of the peninsula, the DPRK issue, and the denuclearization of Iran. Nonetheless, it did not explicitly propose to treat China as the first opponent. However, the reports issued by the United States recently see China as the first opponent. The relations between the two major powers will affect the global political and economic diplomacy and the fierce competition between them will become a new normal.

Groundless Accusations Come from Strategic Anxiety

The recent 301 investigation report launched by the United States has raised a storm in the world and thus, we must first understand it well. This investigation report interferes in China’s internal affairs, and it does not make any sense because it just simply runs through all the important documents released by China in recent years, from the 19th Congress report of General Secretary Xi Jinping, to the National 13th Five-Year Plan, the 12th Five-Year Plan, “Made in China 2025”, several documents of the State Council, the National Development and Reform Commission and the Ministry of Industry and Information Technology, provincial documents, industry association documents, even the documents of some listed companies. Just like China’s ambassador to the WTO pointed out, the 301 investigation report is completely a mess and does not show any logical relationship, and is full of confusion and mistakes. All the documents issued by the State Council of China in the past is the way of exercising its right to govern China’s internal affairs in accordance with the law. The United States has no right to cross the international organizations and interfere in China’s internal governance and program. The US put its own interests above the international rules is absolutely a wrong move against historical trends, and we should be aware of that the 301 investigation report is just a mistake.

In addition, we should notice the shift of the United States in the 301 investigation report: the US has shifted from the trade issue to restrain China’s modernization in all aspects. The US has started to fully block the Chinese industry moving from the low end to the high-end of the value chain. I think that the United States is a bit scared now and is very anxious about China’s development.

The American society has always been in a state of chaos since Trump started his presidential campaign. China’s development of high-tech and manufacturing have caused severe fear to the US. In 2016, the output value of China’s manufacturing industry accounted for 25.5% of the world’s total, while the United States dropped to 15%. At the initial stage of China’s reform and opening up, however, the output value of the U.S. manufacturing industry accounted for more than one-third of the world’s total and reached a record-high of 50% during the period of the Second World War. Such kind of change is not just about the change in GDP or total economic output, but a change in manufacturing capacity. In 2010, the output value of China’s manufacturing industry surpassed the United States, accounting for 19.8% of the world’s total, while the United States dropped to 19.4%, implying that China has made great achievement in military production capacity and sustainable economic prosperity. When China’s manufacturing industry was still at the middle and low end, the United States did not have to worry about it at all, nonetheless, the significant progress made by Chinese industry in recent years has caused widespread panic in the United States.

Some US think tanks claim that the “Made in China 2025” program actually uses state actions to support the development of high-tech industries. I agreed on that. The United States has also supported the development of its high-tech industry with its state actions. The information superhighway during the Clinton period was supported by national actions. In 2011, the US also used state actions to safeguarded the leading position of its advanced manufacturing industry. In particular, the federal government’s documents released in 2014 regarding the acceleration of the development of the advanced manufacturing industries also encouraged the US manufacturing industry to move to higher level. German’s strategy for 2020 high-tech industries and the industrial manufacturing 4.0 proposed in September 2013 are all acts of the state. Japan’s robot plan is also an act of state. Why did the US only investigate and punish China? This is totally unjustifiable. Of course, we must understand the gap between the US and China’s manufacturing industry still exist and we need to work hard on upgrading and improving China’s manufacturing industry. The purpose of the investigation launched by the US against China is to stop China from bringing its manufacturing industry to high-end level.

Misunderstandings and Misjudgments of the American Society

The US 301 investigation report is also a reflection of misjudgments and misunderstandings of the U.S. society. Some experts of well-known think tank put forward that the “Made in China 2025” program is an act of state, saying that China forces the US companies in China to transfer their technology to their Chinese counterparts by issuing new documents, especially in the industry of clean-energy cars. In fact, the Chinese government has never issued such kind of document. In terms of technology transfer, Chinese enterprises have paid their price and conducted fair negotiations. The transfer is voluntary and is an equal exchange between the US and Chinese companies, complies with the international law, and is in the interest of the US and Chinese companies.

Some scholars and government officials believe that it is wrong for the United States to promote China’s opening up and bring China to the WTO organization. They started to wonder if they have made a mistake because China has now become a threat to the US. This kind of doubt is widely spread in the American society and dominates the American public opinion. What is particularly striking is that the Republicans and Democrats tend to be consistent on this point. Personally, I think that many people mistakenly consider China stronger than the United States. According to a public opinion survey in the United States, many American think that China is the most powerful country in the world, while the United States only ranked second. We also have Chinese scholars who share a similar view. There are also international organizations like the World Bank and the International Monetary Fund that see China as the world’s largest economy if assessed by purchasing power. As a matter of fact, the proportion of the RMB in global transactions and payment settlements was only 1.23% in 2017, while the US dollar was 62%, the two currencies are not comparable.

Therefore, we must pay special attention to the misjudgment of the US community over the US-China economic and trade relations and their economic status. We need to make people realize the huge gap between China and the United States. I talked about this in the German-Chinese Economics Dialogue in Berlin last year. Some people in Germany are also very concerned about China’s rise. For example, some famous German economists think that the “Made in China 2025” program poses a threat to Germany. We must have a clear understanding of China’s current development stage and ensure that the international community has an objective and reasonable viewpoint on China. China must make great efforts to achieve its development goals set by the report of the 19th National Congress. It will take us at least another 30 years and require greater efforts.

Rational and Powerful Counterattack

The Trump Administration has a personnel turnover rate of 35% since Trump entered the White House, which is higher than any other previous administration. The White House has 150 positions but until now only 60 are occupied. In addition, Trump does not hire experts from the mainstream think tanks, the moderates and the advocates of peace are also excluded, leaving only the hawks in the administration. Trump only uses people who follow his order. Therefore, the ability of the US government to compete with us is relatively weak and the Trump administration is moving further along the wrong path. The United States is highly likely to fail because the mistake it has made and the wrong path it has chosen.

China is in a rational and favorable position in this competition with the US and all the actions China has taken is in line with the international rules. China has always kept its door open to negotiations but the United States refused to talk, which made trade frictions unavoidable. All the countries have to comply with the international rules and order and no one should put its interest above other countries. A rising China is a good stabilizer for civilized and peaceful development. On the contrary, the United States has now become one of the biggest variables due to the Trump administration, the wrong direction it has chosen will accelerate its decline in the long term.

China must prepare itself with a long-term strategy in order to deal with the shift in the strategic focus of the United States. At the same time, think tanks need to play a more important role. One thing I have learned from my recent trip to the United States is that communication between think tanks is very important because we can clear misunderstandings and confusion. Without communications between experts, scholars in the US and China, the trade war will hurt the US-China relations we have cultivated and make Trump go further on the wrong path.

In summary, the current special period concerns not only the Chinese people, but also the entire world. The relationship between China and the United States is not just an important bilateral relationship but is also of great significance for the whole world. A peaceful US-China relationship will bring prosperity to the world and vice versa.

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