China Center for International Economic Exchanges

Chen Wenling: Why did the United States launch a trade war?
Date:Jul 14,2018    Source:CCIEE

On July 6, the United States began to impose a 25% import tariff on $34 billion Chinese goods, involving 818 categories. As a response to the trade war launched by the US unilaterally, China also fought back with a 25% tariff on American products of the same size on the same day, leading to an escalation of the Sino-US trade frictions. To better understand the cause and effect of the Sino-US trade war, the “China Interview” program invited Ms. Chen Wenling, Chief Economist of the China Center for International Economic Exchanges to give us a comprehensive analysis.

China Net: In the face of the trade war launched by the US unilaterally, how should we deal with it, are we strong enough to meet this challenge?

Chen Wenling: In the long term, China’s development will keep moving forward. General Secretary Xi Jinping described the blueprint for China’s future in the report of the 19th National Congress: we will realize the socialist modernization by 2035 and fully build a contemporary socialist power by 2050. We are very clear about these goals and we will achieve them.

When the People’s Republic of China was founded in 1949, we were poor and suffered from the “three great mountains (imperialism, feudalism and bureaucrat-capitalism)”. At first, the people had no means to live but with the leadership of the Community Party of China, they later solved the problem of food and shelter, which is a great change. Mao Zedong said that the Chinese people have stood up and became the master of their own country. Although the material was still scarce at that time, a new China was born.

By the time we started the reform and opening up, China has reshaped an economic system. We achieved the transition from a planned economic system to a market economic system, which is able to maximize the originality and motivation of our people and to make the economy full of vitality.

China has unleashed its productivity and rebuilt the foundation of its microeconomy during the past decades but personally, I do not think that China has become very rich. The problem of the rich-poor gap has not been solved completely and the income per capita of the Chinese people is not high enough as it only ranks 71st in the world. The Chinese economy has grown bigger, some of us have become rich faster than many other people, the entire national income has increased and we are about to realize the goal of building a moderately prosperous society in all respect. By 2020, we must enable all people to achieve common prosperity and have zero poverty. The prosperity China has made during the past 40 years is outstanding. China’s poverty-stricken population accounts for 76% of the world’s total and thus, it will be a miracle in the history of human development if we can achieve zero poverty.

China has stood up and become more prosperous than before but we need to make it stronger. Today’s China is totally different from the old China. When China was just founded, it was very poor and suffered from a worldwide block. Nonetheless, China was not defeated. Although there is still a big gap between China and the United States, China has made significant progress in many aspects. For example, the total GDP of China has become the second largest in the world, it has the world’s biggest volume of trade, the highest value of manufacturing output. Moreover, the internationalization of the Renminbi accounts for 10.92% of the five major currencies, and 10.92% of the currency in the SDR basket. China’s current manufacturing industry has actually become the most complete supply system in terms of varieties and specifications, which worries the United States. The United States think that there is a vertical division of labor between China and itself in the manufacturing industry: the US is at the high end or middle/high end of the industrial chain, while China is in the middle and low end of the industrial chain and the manufacturing structure of the two sides are supposed to be complementary. More importantly, the US expects to get a lot of Chinese goods with very little money. Now, China’s manufacturing is moving towards the middle/high end of the industrial chain and its output value accounts for 25.5% of the global total. During the World War II, the output value of the United States accounted for 50% of the world’s total. In the early days of China’s reform and opening up, the value of US manufacturing output accounted for 33% and this figure has further reduced to the current 15%, while China’s manufacturing accounts for 25.5%. In addition, China is upgrading its industrial structure and revitalizing the entire equipment manufacturing industry with the aim of making itself a strong manufacturer. This is why the US wants to contain China, especially the American hawks, who believe that China will overtake the US in all aspects and the US will not be able to maintain the number one position in the future. This is also the main reason why the US has launched the trade war, trade conflict, or trade frictions. The progress made by China’s manufacturing will enable it to compete with the US.

It is our strength that the US fears. We should remain confident despite the gap between China and the US in such areas as the manufacturing, military, wealth per capita, technological development and the international management of multinational companies. On the contrary, it is the gap that motivates us and drives us to move forward. To narrow down the gap is the goal we aim to achieve in the future.

Therefore, we should be confident when dealing with the US. If anyone puts sanction on us, we will fight back. China was not knocked down during the most difficult time and it has become stronger than ever. Some countries try to block China and make it disappear, this is impossible. Under the leadership of the CPC, China has made tremendous progress after so many years of hard work, which impressed the world, including the United States. What do you think of the huge achievements?

China has freed its people from poverty and created a better life for 1.39 billion people, which is a huge contribution to history and mankind. It did not bring any burden or trouble to the world, instead it has made significant contribution and brought new ideas to the world. Therefore, no country should fear the rapid development of China. All countries should have the right to compete with other countries equally because this is the only way our world can make continuous progress.

No country can maintain its status forever, no matter how strong it is. During the process of catching up with each other, the strong country will be replaced by another country sooner or later and if you are strong enough, you can catch up and become the number 1 again. History will advance in the process of sublation and competition will make us better-off.

Therefore, I think that China does not need to be discouraged or be intimidated by this kind of impetuous hegemonism. China has the capabilities to cope with any difficulties.

There is another aspect that the United States has no way to compare with China. China’s development is now in line with the historical trend, it adheres to economic globalization, trade facilitation, trade liberalization, and aims to build a community with a shared future for mankind. The Belt and Road initiative proposed by China is not just in the interest of China but more importantly, to encourage more countries to participate so as to change the world through interconnection. This is not about the division of power but to reduce the cost of economic development by creating a smooth flow of business, logistics, information and capital. I think that this is a public product offered by China to the world according to the basic principle of mutual consultation, joint construction and sharing the outcome, which has been supported by many countries. So far, we have signed cooperation agreements with more than 80 countries and international organizations. On the 14 of May last year, the Belt and Road Forum for International Cooperation was attended by representatives from more than 130 countries. Now, 75 industrial parks have been established or under construction in countries along the belt and road route.

All these imply that China’s current voice has actually received the attention of the international community. The programs, ideas and opinions put forward by China have been appreciated and responded by the international community.

In terms of trade, I feel that the international organizations, the IMF, the World Bank, and the WTO all have the same voice: to promote economic globalization, maintain the multilateral system and against irrational trade protectionism. Closeness, conservatism, backwardness and protection will not be able to help any country to remain its permanent hegemonic status forever. Hegemony is based on continuous economic development and technological innovation, not on protection. Furthermore, technological innovation needs to be transformed into products and generate revenue, which will provide momentum for continuous innovation.

What the United States is doing now has just broken this chain. Although the US has now the best innovation but without continuous efforts, it will not be able to maintain its leading position forever. If the US does not export its innovated products, it can not generate the monopoly profits that technological innovation should have. Consequently, the benefit of its innovation will diminish. This kind of practice harms others without benefiting the US itself, nor does it help the economic development and technological innovation of the US.

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