Why America and China Should Resume Trade Relations
Updated: May 8, 2019
By: Connell Wise
As of December 2nd, 2018, both the United States and China have reported that they have reached a truce for the ongoing US-China Trade War. The deal was worked out over the dinner table at Buenos Aires. Stock markets in Japan, the US, and the UK recovered slightly after the truce was hashed out. American export giants like Deere, Boeing, and Caterpillar are still circumspect about the durability of the truce but have welcomed the reprieve from the possible disruption of their careful production chains. Now that there is a moment of reprieve for both sides of the Pacific, it is time to reassess why free trade is still the answer the bitter disagreements that have occurred between China and the US.
Why Trade is (still) the Answer for US.
The major benefits of US trade with China are access to cheap consumer goods, an overall higher standard of living, and business opportunities to support high paying export jobs. A higher standard of living in the US also encourages more innovativeness as well as investment from companies abroad. Through cheap access to consumer goods, individuals and businesses can specialize in more lucrative industries that the US is good at such as IT and service sector jobs. On average, trade liberalization has boosted the earnings of an American family of four by up to 10,000 dollars. The benefits of trade do not just stop at individual consumers, small and large businesses have something to benefit from trade liberalization as well.
Small businesses have a lot to benefit from trade relations in China. This includes a access to a massive consumer market, business partnership opportunities, and access to talent from the large pool of educated Chinese students. By reducing trade barriers, small businesses now have an easier time forming business partners and selling products in other countries as well. The economic boosts to small businesses also help their employees as well and job growth in the US. According to the Small Business Administration, up to 53% of employment in the US are from small businesses. Furthermore, small businesses that trade abroad also hire more and sell more products than non-trading businesses.
One the biggest beneficiaries for trade with China are multinational companies. According to the Department of the Treasury, multinationals have become the primary driver of economic growth in the last three decades between 1977 and 2000. They have also contributed to the growth in productivity between 1995 and 2000. Globally engaged multinationals are useful in trade because it allows them to pay their employees 20% higher than average. Economic activity conducted overseas by US Multinationals is also helpful in boosting domestic spending at home by a factor of 3.50 dollar increase in spending for every one dollar abroad. By liberalization trade for multinational companies, it would provide the US economy a much needed source of jobs and fuel for economic growth.
According to the Office of the United States Trade Representative, America is the largest importer and exporter of goods and services with 5.3 trillion dollars in value traded in 2017 alone. Today, American trade with China supports up to 2.6 million jobs throughout a variety of industries. If the United States wants to continue to be the best place to do business and the most competitive economy, continuing trade relations with China is a must.
Current Status of Trade Negotiation between the US and China
There are ongoing negotiations still occurring between the US and China. The current issues that are on the table include Chinese purchases, enforcement of new regulations, and other digital issues especially as they pertain to Hua Wei. The two figures leading the negotiations are Chinese Foreign Ministry Spokesperson Liu He and US Trade Representative Robert Lighthizer. According to President Trump, the talks are going well and that further negotiations will take place in Washington DC on Wednesday. Both sides have purported to take each other’s demands and needs very seriously in the negotiation process. As of last Friday, Treasury Secretary Steve Mnuchin has stated that the negotiation has passed its 10th round of negotiations.
Despite the progress that has been made, many obstacles remain. One example of an obstacle made by China is the government’s insistence to continue subsidizing state-owned enterprises despite repeated protests from the United States and other countries. On the US side, there is a perception that several concessions will have to be made in order to continue the negotiations process and prevent it from being derailed. China has thus far agreed to import an additional 1 trillion dollars’ worth of US goods to reduce the trade deficit. China has also stated that it has made great progress in the trade negotiation. The government has brought a skilled negotiation team that has successfully defended many of China’s positions in the talks so far including state subsidies and the requirement for foreign companies to partner with Chinese companies when doing business on the mainland. One particular part of China’s trade position that has remained the most intact is the “Made in China 2025” plan. Although it was the target of great ridicule from President Trump, the Chinese have remained resolute in defending its current policy. China has had to give out concessions to the US in exchange such as being required to buy additional US goods.
The American business community is still feeling uncertain after the economic truce made between China and the US last November. They would like to see negotiations end as soon as 2-3 weeks later to help bring certainty and predictability to the market once more. Although many US companies have smarted under the weight of tariffs on both sides, they largely support US tariffs out of a desire to check the growing power of state-subsidized companies that have represented China’s growing economic profile. American companies are worried about rising costs, forced partnerships with Chinese companies, and the threat of censorship from the Great Firewall of China. As of today, the Great Firewall of China covers a wide swath of websites including Facebook, Twitter, YouTube, Google, and etc.
Although the current trade war between the US and China have been a considerable set back for the two superpowers. The current strategy to of expanding and deepening trade with China still opens the door to a world of economic opportunities for both sides and will be a net benefit for citizens on both sides of the Pacific. As the two largest economies in the world, the tariff exchanges between the US and China have had profound knock-on effects with neighboring countries and allied countries on both sides. Countries that have been especially harmed by the trade war include South Korea, Singapore, and Taiwan. For example, Singapore’s economic growth could be cut by .8% this year and 1.5% next year. These countries have formed a coalition to lobby both sides to meet unto the negotiation table to stabilize the world economy and prevent a potential recession from breaking out. Although the Trump administration was initially influenced by more hawkish actors in the White House, eventually the President met with Xi Jin Ping in the first round of negotiations in Buenos Aires where both leaders agreed to call a truce on the trade war for the sake of the economic wellbeing of their countries.
There are still many ways that the negotiation progress gets stalled, rolled back, or derailed. These include domestic political consideration, a sudden turn in negotiation, and a backfired attempt from either side to intimidate each other into giving out more concessions. Recently, Donald Trump made a series of tweets in a bout of frustration over negotiations process. In his tweet, the President stated that he would levy an additional 25% tariff on 325 billion dollars’ worth of untaxed goods if China does not give out further concessions to the US. The proposed tariffs that the President threatened China would affect over 6000 products from China ranging from anchovies and pet food to tobacco and rare-earth metals. His reason for making the threat is that the negotiations are going slowly and he wants more progress to be made. Even though the President has made these threats on the 11th hour of trade negotiations, he still supports the efforts towards a definitive trade deal between the US and China.
About the Author:
Dr. Connell Wise, DDIV is a Black-Filipino American currently he services as the Founder & Managing Partner of CW&A LLC (Connell Wise & Associates) an International award-winning Social Impact Advisory firm that focuses on Equitable Economic, Business Development and Government Affairs. He is the former founder & Chairmen of the U.S. Youth Chamber of Commerce and a Mayoral Appointee by form DC Mayor Adrian M. Fenty and White House staffer under Former U.S. President Barack Obama. Dr. Wise is a Youth & Disability rights Advocate, former Coast Guard Officer, and native Washington D.C. he serves as the Chairmen of the Board for the International Council on Trade and Development.