America’s own data shows folly of a trade war based on bluster

China’s white paper on the issue cites US sources that show bilateral trade is not as skewed as some make out; indeed, both countries have benefited enormously

PUBLISHED : Thursday, 27 September, 2018, 9:38pm
UPDATED : Thursday, 27 September, 2018, 10:00pm

A trade war is as much about complex statistics as belligerent rhetoric. In its latest round, China has launched a defence on both fronts by laying out its case with an official white paper, while taking the moral high ground with calls for compromise with the United States and for open world trade. It will wage a trade war if it must, but would much prefer to make peace if and when cooler heads prevail in Washington. In briefings on the paper, Vice-Minister of Commerce Wang Shouwen declared China was ready for talks, but not with “a knife at its throat”.

It is telling that the white paper cites mostly American sources. Beijing is clearly trying to say: look at your own data before levelling accusations at us. Its publication came as a new round of tariffs kicked in against US$200 billion of Chinese imports. In retaliation, China has imposed its own tariffs on US$60 billion of American goods. Whether or not you buy US President Donald Trump’s argument that China has been taking advantage of the America for decades, Beijing has two unassailable arguments. First, both countries have benefited enormously from bilateral trade. Second, compromise is better than war. When Trump talks about the US trade deficit with China, his focus is usually on goods produced, rather than services delivered and sales made by American subsidiaries in China. China’s economy has been driven by manufacturing while America’s focuses on services, especially in hi-tech. That’s why the US is the biggest source of China’s deficit in the trade in services. US statistics show that American service exports to China grew from US$13.14 billion in 2007 to US$57.63 billion in 2017, representing roughly 20 per cent of China’s total deficit in services trade.

China ‘supports millions of American jobs, makes big profits for US firms’

There are about 68,000 US-funded enterprises on the mainland having invested over US$83 billion, compared with US$16.98 billion by Chinese enterprises in the US. Trade has supported US growth and lowered inflation. A joint study by the US-China Business Council and Oxford Economics indicated that in 2015, exports to China and two-way investment contributed US$216 billion to America’s GDP, pushing the US economic growth rate up by 1.2 percentage points. Cheaper Chinese goods reduced the US consumer price index by 1 to 1.5 percentage points. It is also estimated that US exports to China and two-way investment supported 2.6 million American jobs in 2015.

If China has not always played fair, it’s not that America was harmed, but that Chinese have sometimes taken more than their fair share. If that is the narrative, then negotiation rather than war is the way forward. Economic nationalists like Trump want to make America a manufacturing powerhouse again. But long ago, the US has collectively decided to become the world’s greatest hi-tech service/consumer-driven economy. That’s not China’s fault.