China-US Economic and Trade Cooperation in Figures
By Zhou Shijian
1. The Fast Growth of China-US Trade
After two years of sluggish performance, China-US economic and trade cooperation registered significant growth amid encouraging signs in 2017.
In 2016, the American economy was weak, while China’s growth moderated to the slowest pace since 2010. Both Chinese and American statistics pointed to negative growth in the bilateral trade across four indicators: total volume, export, import and even trade balance. Chinese figures testified to a 6.7% drop in the total trade volume, compared with a 3.6% slump calculated by the United States. As the US dollar strengthened, American exports to China fell for two consecutive years.
Yet things turned for the better in 2017. According to Chinese statistics, China-US trade reached US$583.7 billion, up by 12.3%. Exports to the US stood at US$429.8 billion, up by 11.5%. Imports from the US were US$153.9 billion, an increase of 14.5%. China ran a US$275.8 billion surplus against the US, up by 9.9%. American statistics put the bilateral trade at US$650.1 billion, up by 9.9%. Imports from China grew by 9.3% to US$526.2 billion. Exports to China saw a 12.8% increase to US$130.4 billion. The US ran a deficit of US$395.8 billion, up by 8.2%.
In 2017, trade with the US accounted for 14.2% or 1/7 of China’s total foreign trade. Exports to the US accounted for 19% of the total and would take 23.3% or almost 1/4, if the US$526.2 billion transshipments through Hong Kong were included. Since 2012, the US has overtaken the EU as China’s top export market. According to the statistics on the American side, trade with China accounted for 16.43% or 1/6 of America’s total foreign trade. Imports from China represented 21.84% or over 1/5 of the total.
In a stark contrast with trade in goods, China bears a considerable deficit in trade in services over the years. According to Chinese statistics, China-US trade in services was US$120.1 billion in 2017. With US$33 billion exports to the US and US$871 billion imports from the US, China ran a deficit of US$54.1 billion.
Since 2015, China has replaced Canada as America’s largest trading partners for three years. The two countries have long become each other’s major, interdependent trading partners for win-win outcomes.
2. The Rapid Expansion of Two-way Investment between China and the United States
Over the past few years, the non-financial investment made by Chinese companies in the US expanded rapidly. According to Chinese statistics, Chinese investment in the US were US$5.24 billion in 2014, up by 30.7%; US$8.39 billion in 2015, up by 60%; US$20.08 billion in 2016, up by 139.3%, and US$7.81 billion, down by 62%. (Investment via third places is not included. For example, the US$7.1 billion acquisition of Smithfield Foods by ShuanghuiInternationalHoldingsLimited in September 2013 was not counted as investment by the Chinese mainland, as Shuanghui International was registered in Hong Kong. ) By the end of 2017, the investment from the Chinese mainland to the US totaled US$57.27 billion. (The drop in 2017 was due to the intensified security review and restrictions imposed by the American government on Chinese investment. An additional explanation was that China called for rational outbound investment in order to stabilize its foreign exchange reserves.)
According to Rhodium Group’s statistics, China’s non-financial investment in the US (including that via Hong Kong, Macao and FTZs) amounted to US$14 billion in 2013, US$11.9 billion in 2014, US$15.8 billion in 2015, US$45.6 billion in 2016, and US$29 billion in 2017. By the end of 2017, the accumulated Chinese investment in the US had been US$136.4 billion. As Stephen Orlins, President of the National Committee on United States-China Relations, said, Chinese investment had created 140,000 American jobs by the end of 2016.
Since the financial crisis broke out, more and more large and medium-sized Chinese companies have shown a keen interest in investing in the United States, a country that boasts a sound and transparent legal environment, advanced technologies, skilled workers, cheap energy, low logistics costs, well-developed infrastructure and first-rate R&D capabilities. More importantly, the United States has sophisticated marketing channels and a huge consumer market. Access to the American market would mean a global market opened for any product. Since 2018, the Trump administration will significantly cut corporate taxes, which will further unleash the enthusiasm of Chinese companies to invest in the United States. As the top economy in the world, the United States needs global capital to support recovery and restore prosperity.
Paid-in non-financial investment by the United States in China continues to increase. According to Chinese statistics, it was US$2.37 billion in 2014, US$2.09 billion in 2015, US$2.39 billion in 2016, and US$2.65 billion in 2017. By the end of 2017, American investment in China had totaled US$82.65 billion.
According to the Rhodium Group, the paid-in non-financial investment by the United States in China’s mainland (including that through Hong Kong, Macao and Taiwan regions) had reached US$228 billion by the end of 2016.
China and the US are also each other’s important partners in two-way investment.
China and the US started BIT negotiations back in 2008. In the 2013 Strategic and Economic Dialogues, the two sides agreed to negotiate on the basis of pre-establishment national treatment and a negative list. Negotiations on the draft agreement were completed before the end of 2014. Negotiations on the negative list kicked off in early 2015. China has made enormous efforts to cut the items on the list from 190 in 2013 to 95 in July 2017. At the same time, China demanded the United States reduce or remove non-economic restrictions on corporate investment, including the so-called national security review. It is reported that 27 investment projects by Chinese companies were held back by US national security reviews, causing severe disturbances to Chinese investment in the US and bilateral cooperation.
BIT is an important part of China-US economic relations. A high-standard BIT will help to forge closer links between the two countries, improve the quality of economic and trade cooperation, and represent a major step towards a China-US Free Trade Area. It therefore serves the major economic interests of the two countries.
President Trump visited China on November 8 to 10, 2017. During the visit, China and the US signed business deals worth US$253.5 billion, almost half of the GDP of Taiwan Province in 2016. Procurements made by the Chinese side amounted to US$108.8 billion, accounting for 42.9% of the total. These included 370 Boeing aircraft worth US$30 billion, chips, aviation engines and auto parts worth US$26.2 billion, US$11 billion LNG, US$5 billion soy beans as well as beef.
Chinese companies also signed US$131.7 billion investment agreements, accounting for 52% of the total value. These included US$83.7 billion invested by the State Energy and Investment Group in West Virginia to develop oil and natural gas, US$43 billion invested by Sinopec in Alaska to develop natural gas and oil, and US$5 billion by Chinese companies in Wyoming to develop energy.
Among the business deals, there are five investment projects by American companies, worth US$13 billion and accounting for 5% of the total value.
If all the above-mentioned procurement and bilateral investment projects are to be implemented, they will facilitate faster growth of China-US business ties and help to gradually reduce US trade deficit with China.
The Trump administrationwants Chinese companies to develop projects in sparsely populated and less developed states. This fully demonstrates that the United States wants to use China’s capital, technologies and human resources to help realize Trump’s vision to revitalize the American economy.
This also shows that the Chinese government is working actively to gradually reduce US trade deficits with China.
3. China and the US Should Avoid Trade War
Over the past years, US trade deficits with China have stayed at a high level. Yet their share in America’s total foreign trade deficits dropped steadily from 50.6% in 2014 to 45.88% in 2017.
Most of the Chinese exports to the US are inexpensive yet high quality daily consumer goods. They help to ease inflation and benefit the middle and low-income population in the US, which is tantamount to reducing taxes for them.
In 2016, 98% of shoes worn by Americans were imported, among which 60% came from China, 19% from Vietnam, and 10% from Indonesia. The US also imported from China 86% of the toys, 61% of the bags and suitcases, 44% of the furniture, 37% of the textiles and garments, and 27% of the electronics and machinery (which included 94% of the laptops and tablets, 40% of the digital cameras, and 27% of the color TVs).
In China-US trade, China has maximized its strengths in low cost and high quality, while the US has its high-tech advantages severely constrained. For example, if the US transfers its high technologies in energy and environmental protection to China, that will create hundreds of billions of dollars of business opportunities. However, the American government has chosen to constrain itself and give away such opportunities to Europe and Japan.
In 2017, the Trump administration abused legal means for trade protectionism. From the invoking of the Section 337 of the 1974 Trade Act at the beginning of the year, to Section 301 investigations initiated on August 14, and to Section 201 investigations launched on January 22, 2018, large-volume washing machines from South Korea, China and Japan as well as solar panels from China and Malaysia were targeted. On February 16, 2018, Commerce Secretary Wilbur Ross announced Section 232 investigations. According to the investigation report, a 24% tariff will be slapped on imported steel products, a 7.7% tariff on imported aluminum products, a 23.6% high tariff on aluminum products from Russia, Vietnam, Venezuela and China. Gary Hufbauer, a well-known expert on trade from the Peterson Institute for International Economics, said in an AFP article that trade sanctions would result in a 20% increase in steel prices, but the report made no mention of the damage on the American economy. “GE, Caterpillar, Emmerson and all bridge building companies will pay a high price for it. The Department of Commerce made these suggestions at a time when the White House is pushing for massive infrastructure rebuilding in the US.” It is no exaggeration to say that there will be more negative impact than benefits.
The investigations under Section 337, Section 301, Section 201 and Section 232 all stem from the Trade Act promulgated by the US more than 50 years ago. What comes out of the investigations is either steep tariff rises on imports or strict import quotas. This is nothing but trade protectionism. The law was made by the Americans. The judges, lawyers and investigators are, too, Americans. Where is justice and fairness that defines the rule of law? Most revealingly, it is the 6 judges from the US International Trade Commission who make the final judgement. Even if they vote 3 to 3, foreign companies still lose to American companies according to the Trade Act. Isn’t it a typical practice of “America First”? This is completely against WTO rules on multilateral trade.
In 2001, the Bush administration launched Section 201 investigations and finally imposed a strict quota on imported steel products. In defiance of the ruling, China and the EU sued the US at the WTO dispute settlement agency. The American government lost the case and canceled the steel import quotas. The author witnessed the victory as a member of the delegation of the Chinese Ministry of Commerce in the case against the US. I therefore suggest that countries involved in the investigations should work together to sue the US at the WTO dispute settlement agency to safeguard their legitimate rights.
It has been 47 years since the US started to have trade deficits in 1971 and the deficits are still widening. According to statistics of the US Customs, the US ran deficits in trade in goods with 101 countries and regions. The US trade deficits are inevitable in the context of economic globalization, post-WWII industrial adjustment and massive international division of labor. It is structural and is hard to change. As a matter of fact, daily consumer goods imported from China and other developing countries are essential supplements to America’s economic development, structural restructuring and people’s life. As history fully demonstrates, the United States is well positioned to exploit the status of the dollar as an international currency to manage this issue.
Trade frictions are nothing to fear. Dialogue is better than confrontation and consultation is better than fighting. China and the United States are the world’s second and largest economies respectively and each other’s important trading partners. A trade war will only hurt both countries. And no one will benefit from it. Worse still, it will also weigh on the world economy. This is the last thing that the Chinese and American people and people of world would want to see. All in all, cooperation creates mutual benefits and confrontation hurts both. Win-win cooperation is the only right way forward.
Zhou Shijian is Senior Research Fellow of the Center for China-US Relations, Tsinghua University.
Zhou Shijian is Senior Research Fellow of the Center for China-US Relations, Tsinghua University.