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Illustration: Craig Stephens
Opinion
Wang Huiyao
Wang Huiyao

After the G20 trade truce, China and the US need clearer rules and more engagement to get relations back on track

  • China should address American concerns on investment and forge better non-governmental and state-level ties in the US, while each side should encourage more study, travel and work in the other country
  • Better data would also give a more balanced picture of trade
The world breathed a sigh of relief last weekend as Chinese President Xi Jinping and US President Donald Trump agreed to resume trade talks and halt any further tariffs.

Both sides must now make the most of this opening, forging a deal that puts relations on a healthy track and stops further damage to the global economy. However, despite shared interests in ending the dispute, a final resolution is far from guaranteed.

In this crucial period, based on in-depth research and a series of diplomatic visits to the US, here are some recommendations to give negotiations the best chance of success and help build a lasting, cooperative China-US relationship.

It is important to note that the positive turn at the Xi-Trump summit reflects structural factors on both sides in favour of reaching a deal.

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For its part, China wants to end hostilities and alleviate pressure on the economy. Across the Pacific, Trump wants “wins” to sell in the upcoming presidential election. As suggested in his press conference in Osaka, chief on his wish list is increased Chinese imports of US goods.

This goal aligns with a key principle raised by China in the last round of negotiations: access to US technology exports.

An agreement for China to buy technology exports currently blocked by the US, as well as other items such as agricultural and energy products, would help meet the needs of Chinese consumers and companies while reducing the trade deficit.

Encouragingly, in Osaka, Trump suggested he will reverse the ban on US firms selling to Huawei.

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Chinese purchases of US goods will reduce political pressure and narrow the trade deficit, as currently defined. However, it is just as important that we improve the way trade is measured to better reflect the gains both sides derive from their economic relationship.

For example, trade in services, including overseas study and tourism, is currently omitted from the trade balance. Correcting this would reduce the trade deficit by up to US$50 billion.

Trade statistics should also be improved to account for global value chains and the true value added in each country. Current methods overlook China’s role in processing trade and overstate the trade deficit.

Better data would give a more balanced picture of China-US trade and the benefits for both sides. It would also help to shape more effective trade rules for the 21st century and combat misperceptions about globalisation that have fuelled protectionism.

Meanwhile, China’s new Foreign Investment Law offers an ideal vehicle to address sticking points in talks. Details can be shaped to address specific US concerns such as intellectual property protection and technology transfer. This would give firm legal guarantees on key issues while avoiding the complicated process of overhauling existing legislation.

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In the long run, broad engagement through different sectors and channels is key to building a China-US relationship based on shared understanding and mutual benefits.

In business, it is vital that China attract more US firms to invest and embed themselves in the bilateral relationship, providing a bulwark against the threat of “decoupling”. This means continued opening up and reducing the distinction between “foreign” and domestic companies.

This week has already seen major progress, with further opening under China’s new foreign investment negative list and Premier Li Keqiang’s announcement that foreign ownership limits in the financial sector will be lifted in 2020, a year ahead of schedule.

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Given the autonomy of local governments in the US, Beijing should also increase engagement with American states and cities, aligning with their investment needs and supporting local constituencies to promote friendship with China.

New mechanisms for bilateral exchange at the gubernatorial and mayoral levels could nurture economic cooperation between local governments.

Non-governmental bilateral exchanges should also be increased. Exchanges between think tanks, trade associations and NGOs can provide effective communication channels that help bridge differences and propose solutions.

Finally, in this period of tension between China and the US, it is more important than ever to promote cultural ties. In particular, it’s necessary to protect and expand opportunities for Chinese and Americans to study, travel and work in each other’s countries. Trump’s recent reassurance that Chinese students are welcome to study in America is a good start.

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These flows of people have long been overlooked as important components in bilateral relations. They generate significant income and broaden individuals’ horizons, while aiding understanding between China and the US and sowing seeds for future cooperation.

Chinese graduates of Columbia University in New York wave Chinese flags during the commencement ceremony on May 16, 2018. US President Donald Trump offered assurances at the recent G20 Summit in Osaka that he wants Chinese students to come to the US. Photo: Xinhua

Xi’s opening remarks at the China-US summit in Osaka recalled the launch of “ping-pong diplomacy” nearly 50 years ago in nearby Nagoya. Back then, a small ball played a big role in world events, creating an opening to bring China and the US together.

Today, China-US relations have grown to an extent unimaginable back then. Over 10,000 people and a vast amount of goods and services flow between the two countries each day. These flows are integral not only to both nations but the global economy.

With negotiations back on track, the onus is now on both sides to find a lasting solution to the dispute. Only this will ensure that the China-US relationship can continue to underpin global peace and prosperity, rather than threatening to undermine it.

Wang Huiyao is founder and president of the Centre for China and Globalisation

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