China-US trade imbalance is a "pseudo-proposition"

---interview with Gao Yan, chairwoman of China Council for the Promotion of International Trade

By Lin Lili from People’s Daily

The so-called trade imbalance between China and the US is a "pseudo-proposition", said Gao Yan, chairwoman of China Council for the Promotion of International Trade (CCPIT).

She remarked in a recent interview with People’s Daily, responding to the additional tariffs on Chinese imports imposed by Washington, who attributed the tariff raise to the so-called trade imbalance.

The US decided to raise tariff rate from 10 percent to 25 percent on $200 billion worth of Chinese imports effective on May 10.

China-US trade is a choice made by both Chinese and US enterprises and consumers based on their own wills, said Gao, who is also member of the National Committee of the Chinese People's Political Consultative Conference.

The inflated US trade deficit with China is a result of a biased statistical method which played down trade services and cross-border investment, and neglected the fact that the US had imposed strict restrictions on high-tech exports to China, Gao pointed out.

Many Chinese and foreign experts have made comprehensive calculation on the losses and gains in China-US trade. They believe that cross-border investment, which has replaced part of the role played by trade, cannot be underestimated, and proposed a new calculation method that could better reflect China-US trade.

The actual trade surplus, as the experts suggested, should be the amount of Chinese export to the US with the addition of Chinese enterprises’ revenue in the US subtracting the other way around. Trade of both goods and services are included in this method.

As early as 1960, American economist Stephen Herbert Hymer had predicted that overseas investment of US companies would to a large extent replace the role of export. In fact, US has long been aware of the flaws in its trade statistical system and started to build a trade statistical standard based on investment ownership in the early 1990s. Earlier this year, the Deutsche Bank also released a research report based on a similar topic.

According to data provided by the US Bureau of Economic Analysis (BEA), China-US trade surplus calculated by the ownership principle was narrowing between 2009 and 2017, Gao introduced. In 2017, China’s trade surplus with the US was only $45.3 billion according to the statistical method.

           

If the statistical caliber is widened and includes all American enterprises investing in China, the US was enjoying a trade surplus with China from 2009 to 2017. The surplus expanded from $14.5 billion to $160.4 billion during the period.

The above statistics indicated that China-US trade is a win-win and mutually beneficial relationship, Gao pointed out.

A small discrepancy could make a huge mistake, and the two countries should take the trade issue seriously as it is related to the welfare of the people of both countries. Gao hopes that the US could perceive the current situation in an appropriate manner and stop making up lies about China-US economic and trade relations.

Increasing tariffs affects both Chinese and American enterprises. In today’s world, countries are closely linked together by the international division of labor, and the concept of the “global village” has long been accepted.

China is the largest developing country in the world, while the US is the largest developed country. Cooperation leads to win-win results while confrontation leads to lose-lose situations, Gao said.

Many American transnational companies, who place a big part of their business in China, are highly reliable on the Chinese market. 65 percent of Qualcomm’s profits and 55 percent of Broadcom’s came from China. Other US companies, such as Starbucks, COACH, and A.O. Smith, are also gaining high profits from the Chinese market. If tariff imposition is applied to a wider range of goods on both sides, the industrial chains and profits of these companies will be unavoidably damaged.

“Tariffs Hurt the Heartland”, a national campaign comprised of over 150 of America’s largest trade organizations, estimated that raising tariffs to 25 percent could cost nearly one million American jobs and increase the volatility of the financial market.

It goes against the trend of the times to embrace the open world with conservatism and narrow-mindedness. By this way, the US will inevitably hurt itself.

China-US trade talks stumbled as Washington threatened to increase tariffs on Chinese imports. The CCPIT will step up efforts to properly deal with China-US trade frictions, Gao said, adding that the organization will strengthen exchange with US trade organizations, renowned companies, and important think-tanks so as to promote friendly cooperation with American states and cities and contribute to a stable China-US economic and trade relationship.

2019 marks the 40th anniversary of the establishment of China-US diplomatic relations.

“I believe cooperation is the best and the only option to resolve problems,” Gao noted. Only by strictly following the established principles and direction, strengthening communication, focusing on cooperation and controlling divergences, can China and the US promote trade and economic cooperation and maintain healthy bilateral relations. Bullying and extreme pressure is against the multilateral trading system, and levying tariffs will not help solve economic and trade issues.

It’s hoped that the US will have a correct understanding of the situation and don’t underestimate China’s resolution and willpower to protect its rights, Gao stressed, adding that China is never afraid of any pressure, and has the confidence to resolve and the capability to face up to any challenges and difficulties.

China will steadfastly push forward reform and opening up, and safeguard free trade and the multilateral trade systems, so as to achieve common development and prosperity with the world, Gao said.