China value chain index in need of the right balance

It can be difficult to convince anyone that a trade imbalance does not necessarily reflect the balance of economic benefit between exporter and importer, especially if the argument is being made by China and is targeted at the United States. But it is good that Beijing is making an attempt through a global value chain index that measures the growth and employment benefits of its exports to buyers. Perceptions of globalisation have already created sufficient misunderstanding and strife between industrialised and poor developing nations, without fuelling a trade war between the world’s two biggest economies. 

China is working on a new index to put a different spin on trade gap

As we have reported, China has teamed up with the World Trade Organisation and the Organisation for Economic Cooperation and Development on creating the new index, to bolster Beijing’s argument that it is not the biggest winner from its exports, and that benefits flow on to the buyers. 

The University of International Business and Economics in Beijing is leading work on the index, which is meant to track how economies gain from involvement in different stages of the production process.

For example, according to university deputy chancellor Zhao Zhongxiu sizeable Chinese exports of semi-finished products with a cost advantage could boost the US jobs market by creating employment in research and development, design and marketing. 

University researchers have released a report showing who gains along the global chain of production and trade, claiming that skilled US labourers could benefit from Chinese exports, with the loss of blue-collar jobs being offset by job creation in the hi-tech and services sectors, provided the American labour market could adapt. 

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Beijing is trying to show how, in an integrated world, Chinese growth has flow-on benefits and is an example of why globalisation is a good thing, which is not too far removed from arguments advanced when China joined the WTO. The argument is therefore not unfamiliar to American economic and trade circles, but under President Donald Trump there has been a shift in perception. 

The report on development of the index is well-timed, with China having just announced a record trade surplus with the US last year. This can be expected to add fuel to Trump’s accusations that China is stealing American jobs through unfair trade practices.

China’s involvement in the index project is bound to arouse scepticism in some circles. Inviting other countries to take part could boost transparency and credibility. 

A China perspective on how to produce and interpret the data could be fairer. It can also be seen as part of the effort by China to set the rules rather than just follow them.