Trade issues would be the two-day summit’s front and center, David Dollar told Sino-US.com recently, while suggesting the US government to exert pressure on saving ratio instead of exchange rate issues, and focus on American companies’ market access in China.
Dollar indicated that trade and North Korean nuclear issue would be the top two topics for the Xi-Trump meeting. In his view, as far as trade issues are concerned, the US should realize that China has gained progress in exchange rate-related issues, so the US should put pressure on China to decrease the state reserves in a bid to balance the bilateral trade. Meanwhile, Dollar believes the US should negotiate with China in order to gain more market access in agriculture, manufacturing and services industries.
According to Dollar, China has been accumulating foreign reserves to keep its currency’s exchange rate comparatively low, which has been a thorny issue that affects the US-China relationship.
Two years ago, China began to gradually decrease its foreign exchange reserves, which dropped from USD 4 trillion to 3 trillion. And China’s share of trade surplus in the GDP has decreased from the 10 percent in 2007 to less than three percent in 2016. So, Dollar thinks the US government should value China’s work in stabilizing trade-weighted exchange rate. It is not fair and no use to designate the country a “currency manipulator”.
Dollar pointed out that although the current share of trade surplus in the GDP is three percent, the amount is still huge. The real question behind China’s continuing trade surplus is savings rate, which has far surpassed the levels of other economies, said Dollar.
And the high level of savings is not contributed by individual families. The many state-owned or controlled enterprises would not allow the savings to go into families. If Chinese families are the sources of savings, the country’s saving rate would naturally go down, said Dollar. He suggests using the indicator to evaluate reform of state-owned companies, in case that China would use bank credit to keep their zombie companies alive.
The United States should encourage China to shut down bankrupt companies and promote privatization of state-owned companies to raise family revenues in bid to boost consumption; on the other hand, China should increase expenditures on public health and education to spur its economic transformation to a consumption-powered one, said Dollar. In this way, he believes, China would keep its momentum in economic growth without too much reliance on trade surplus.
Market access should also be a focus. Dollar pointed out that if the Chinese could consume more imported goods, the huge amount of trade surplus could be reduced. Consumption of commodities and services of American companies has been restricted due to limited market access, said Dollar, citing the example of the automobile industry where high tariff and outdated standards applied in China have prevented sales of automobiles made in the US.
American companies also complain about limited market access in the agricultural and financial services sectors. Meanwhile, Dollar emphasized that if the US threatens China with high tariffs, it would not gain what it want. Even if it does, the American economy would also be affected considerably. He suggested the US to consider restricting Chinese state-owned companies’ M&A of American companies to respond to China’s limited market access.
Although the Xi-Trump meeting is intended for both leaders to get to know each other, so Dollar thinks it is better for the US not to threaten or not at lease in public ways. He thinks it is a good way for the US to let China know what measures it would take. And more importantly, the two parties could discuss some changes that would benefit both of them, like encouraging consumption and opening even more to the outside world, which are seen as key for China’s sustainable growth.
David Dollar is a senior fellow with the Foreign Policy and Global Economy and Development programs in the John L. Thornton China Center. He is a leading expert on China's economy and U.S.-China economic relations. From 2009 to 2013 he was the U.S. Treasury's economic and financial emissary to China. Dollar worked at the World Bank for 20 years, and from 2004 to 2009, was country director for China and Mongolia.