Box 2: The Chinese and American economies are interlinked, and bilateral trade and investment are mutually beneficial
China and the US are each other's largest trading partner and important source of investment. In 2018, bilateral trade in goods and services exceeded US$750 billion, and two-way direct investment approached US$160 billion. China-US commercial cooperation has brought substantial benefits to both countries and both peoples.
According to China Customs, the trade in goods between China and the US grew from less than US$2.5 billion in 1979 when the two countries forged diplomatic ties to US$633.5 billion in 2018, a 252-fold increase. In 2018, the US was China's largest trading partner and export market, and the sixth largest source of imports. According to the US Department of Commerce, in 2018 China was the largest trading partner of the US, its third largest export market, and its largest source of imports. China is the key export market for US airplanes, soybeans, automobiles, integrated circuits and cotton. During the ten years from 2009 to 2018, China was one of the fastest growing export markets for American goods, with an annual average increase of 6.3 percent and an aggregate growth of 73.2 percent, higher than the average growth of 56.9 percent represented by other regions in the world.
Trade in services between China and the US is flourishing and highly complementary. The two countries have conducted extensive, in-depth, and mutually-beneficial cooperation in tourism, culture, and intellectual property. China is the largest destination for US tourists in the Asia-Pacific and the US is the largest overseas destination for Chinese students. According to Chinese figures, two-way trade in services rose from US$27.4 billion in 2006, the earliest year with available statistics, to US$125.3 billion in 2018, a 3.6-fold increase. In 2018, China's services trade deficit with the US reached US$48.5 billion.
Over the past forty years, two-way investment between China and the US has grown from near zero to approximately US$160 billion, and this cooperation has proved fruitful. According to MOFCOM, by the end of 2018 accumulative Chinese business direct investment in the US exceeded US$73.17 billion. The rapid growth of Chinese business investment in the US has contributed to local economic growth, job creation, and tax revenues. According to MOFCOM, the paid-in investment by the US in China was US$85.19 billion by the end of 2018. In 2017, the total annual sales revenues of US-invested companies in China were US$700 billion, with profits exceeding US$50 billion.
Therefore, if trade in goods and services as well as two-way investment are taken into account, China-US trade and economic relations are mutually beneficial, rather than the US "being taken advantage of".
(I) The tariff measures the US imposed harm others and are of no benefit to itself
The US administration has imposed additional tariffs on Chinese goods exported to the US, impeding two-way trade and investment cooperation and undermining market confidence and economic stability in the two countries and globally. The US tariff measures lead to a decrease in the volume of China's export to the US, which fell by 9.7 percent year-on-year in the first four months of 2019, dropping for five months in a row. In addition, as China has to impose tariffs as a countermeasure to US tariff hikes, US exports to China have dropped for eight months in a row. The uncertainty brought by US-China economic and trade friction made companies in both countries more hesitant about investing. China's investment in the US continues to fall and the growth rate of US investment in China has also slowed down. According to Chinese statistics, direct investment by Chinese companies in the US was US$5.79 billion in 2018, down by 10 percent year-on-year. In 2018, paid-in US investment in China was US$2.69 billion, upby only 1.5 percent year-on-year compared with an increase of 11 percent in 2017. With the outlook for China-US trade friction unclear, the WTO has lowered its forecast for global trade growth in 2019 from 3.7 percent to 2.6 percent.
(II) The trade war has not "made America great again"
The tariff measures have not boosted American economic growth. Instead, they have done serious harm to the US economy.
First, the tariff measures have significantly increased production costs for US companies. The Chinese and US manufacturing sectors are highly dependent on each other. Many American manufacturers depend on China's raw materials and intermediary goods. As it is hard for them to find good alternative suppliers in the short term, they will have to bear the costs of the tariff hikes.
Second, the tariff measures lead to domestic price hikes in the US. The import of value-for-money consumer goods from China is a key factor behind the long-term low inflation in the US. After the additional tariffs were imposed, the final selling price of Chinese products increased, leaving American consumers effectively bearing some tariff costs. According to research by the US National Retail Federation, the 25 percent additional tariffs on furniture alone will cost the US consumer an additional US$4.6 billion per year.
Third, the tariff measures have an impact on US economic growth and people's livelihood. A joint report by the US Chamber of Commerce and the Rhodium Group in March 2019 showed that, under the impact of China-US economic and trade friction, US GDP in 2019 and the next four years could decrease by US$64-91 billion per year, about 0.3-0.5 percent of total US GDP. If the US imposes 25 percent tariffs on all Chinese goods exported to the US, US GDP will decrease by US$1 trillion in the next ten years cumulatively. According to a research report in February 2019 by Trade Partnership, an American think-tank, if the US imposes 25 percent additional tariffs on all imported Chinese goods, US GDP will decrease by 1.01 percent, with 2.16 million job losses and an additional annual burden of US$2,294 on a family of four.
Fourth, the tariff measures lead to barriers to US exports to China. The 2019 State Export Report, published by the US-China Business Council on May 1, 2019, stated that in the ten years from 2009 to 2018, US exports to China supported over 1.1 million jobs. The Chinese market continues its importance to US economic growth. Forty-eight states of the US have increased their goods exports to China during the last decade – 44 of them by double digits – while in 2018, when economic and trade friction worsened, only 16 states increased their goods exports to China. Thirty-four states exported fewer goods to China, with 24 of them seeing a double-digit decrease. The Midwestern agricultural states were hit particularly hard. Under tariff measures, exports of American agricultural produce to China decreased by 33.1 percent year-on-year, including a 50 percent drop in soybeans. US businesses are worried that they might lose the Chinese market, which they have been cultivating for nearly 40 years.
(III) US trade bullying harms the world
Economic globalization is a firmly-established trend of the times. Beggar-thy-neighbor unilateralism and protectionism are unpopular. The trade protectionist measures taken by the US go against the WTO rules, damage the multilateral trading system, seriously disrupt global industrial chains and supply chains, undermine market confidence, and pose a serious challenge to global economic recovery and a major threat to the trend of economic globalization.
First, the US measures are undermining the authority of the multilateral trading system. The US has launched a series of unilateral investigations, including those under Sections 201, 232 and 301, and imposed tariff measures. These are a serious breach of the most fundamental and central WTO rules, including most-favored-nation treatment and tariff binding. Such unilateralist and protectionist actions have harmed the interests of China and other WTO members. More importantly, they have undermined the authority of the WTO and its dispute settlement system, and exposed the multilateral trading system and international trade order to peril.
Second, the US measures threaten global economic growth. With the shadow of the international financial crisis still lingering over the global economy, the US government has escalated economic and trade friction and hiked additional tariffs, provoking corresponding measures by the countries involved. This disrupts global economic and trade order, dampens world economic recovery, and undermines the development of companies and the well-being of people in all countries, plunging the world economy into the "recession trap".
Third, the US moves disrupt global industrial and supply chains. China and the US are both key links in global industrial and supply chains. Given the large volume of intermediary goods and components from other countries in Chinese end-products exported to the US, US tariff hikes will hurt all the multinationals – not least those from the US – that work with Chinese companies. The tariff measures artificially drive up the costs of supply chains, and undermine their stability and security. As a result, some businesses are forced to readjust their global supply chains at the expense of optimal resource allocation.
It is foreseeable that the latest US tariff hikes on China, far from resolving issues, will only make things worse for all sides. China stands firm in opposition. Recently, the US administration imposed "long-arm jurisdiction" and sanctions against Huawei and other Chinese companies on the fabricated basis of national security, to which China is also firmly opposed.