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America can’t deny the surplus of interest in its trade with China

Editor: Zhang Jianfeng 丨China Plus

09-26-2018 09:42 BJT

Note: The following is an edited translation of a commentary from the Chinese-language "Commentaries on International Affairs."

In the China-U.S. economic and trade frictions that have been escalating over the last six months, one of the American complaints is that the United States has a huge trade deficit with China, and as a result it has suffered a loss. But is it true – has the United States really suffered because of its trade with China? 

The trade imbalance is only the difference in the trading volume, not a profit and loss statement, explained Fu Ziying, China International Trade Representative and Vice Minister of Commerce. Speaking on Tuesday in Beijing, the former accounting industry professional explained that the United States has not suffered losses in its bilateral trade with China, as evidenced by the far higher profits of American companies compared to those in China. Instead, the United States enjoys a "surplus of interest".

The surplus of interest in favor of the United States is a true portrayal of the bilateral economic and trade relationship. After nearly 40 years of development, the two economies have become deeply integrated and interdependent. The scale of their trade has reached 700 billion U.S. dollars, with the annual sales income of U.S.-funded enterprises in China reaching 700 billion U.S. dollars and their profits exceeding 50 billion U.S. dollars.

China and the United States are in different positions in the global industrial chain, and the global value chain. The United States is at the high end, while China remains at the low end. This is reflected by the fact that China’s companies are more likely to earn processing fees, while American companies benefit from product design, parts supply, and marketing. Apple’s iPhones provide an example: They’re designed and developed in the United States for sale around the world. They’re assembled in China, to the benefit of this American company. According to Goldman Sachs research released this year, if Apple transferred its production and assembly to the United States, its production costs would rise by 37 percent.

And for consumers, the large number of high-quality and reasonably-priced goods manufacturerd in China that are exported to the United States has provided American households with more product choices, while reducing their cost of living and raising their purchasing power. This is especially true of the low- and middle-income groups. A U.S.-China Business Council study found that in 2015, China-U.S. trade saved each American household an average of 850 U.S. dollars.

China’s huge and fast-growing market has also provided great opportunities for American companies. According to the "2017 U.S. State Exports to China" report published by the U.S.-China Business Council, each American farmer exported an average of more than 10,000 U.S. dollars worth of goods to China in 2017. According to China’s Ministry of Commerce, General Motors has 10 joint venture projects in China, where its production accounts for 40 percent of its global total. And Qualcomm's chip sales and patent license fees from the China market accounted for 57 percent of its total revenue. 

The American trade deficit with China is not a case of the United States losing out. It is the result of factors including the economic structure of the two countries, and the global industrial division of labor. The United States has always maintained a large surplus with China in the industries where it has advantages, such as automobiles, airplanes, agricultural products, and the service sector. For example, China imported 13.1 billion U.S. dollars' worth of automobiles from the United States, while exporting 1.4 billion US dollars’ worth in the other direction. And according to the “White Paper on China-U.S. Economic and Trade Frictions and China's Position”, released by China’s government on Monday, 57 percent of soybeans, 25 percent of Boeing aircraft, 20 percent of cars, 14 percent of integrated circuits, and 17 percent of cotton exported from the United States went to China in 2017.

Something that the American side has been quiet about during this dispute is the trade in services. The United States had a service trade surplus of over 54 billion U.S. dollars to China in 2017. According to the U.S. Department of Commerce, up to 2016 the number of tourists from China visiting the United States increased 13 years in a row, and has had double-digit growth for 12 of those years. The United States is the largest destination for China’s students studying abroad, a market of approximately 420,000 customers contributing around 18 billion U.S. dollars to the American economy in 2017. And China's payments of license fees for the use of American intellectual property increased from 3.46 to 7.2 billion U.S. dollars from 2011 to 2017.

As for the trade imbalance between China and the United States in terms of goods, there are opportunities to narrow the gap. One way to do this would be for the American government to relax its restrictions on exports of high-tech products for the civilian market. According to analysis done in the United States, if these restrictions were relaxed, the trade deficit could be reduced by about 35 percent. 

The American claim that it is losing out on its trade with China doesn’t stand up to scrutiny. The United States has a surplus of interest, as it benefits from its dominant position relative to China in the global industrial and value chains. The sooner the United States accepts that it is a beneficiary of this bilaterial trading relationship, the sooner it will hopefully take genuine steps towards resolving this ongoing dispute. 

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