Chinese think tank suggests 10 steps to reduce China-US trade frictions

The trade dispute between China and the United States has entered a stalemate. But the two sides should seek an opportunity to rationally solve their problems to protect the interests of the two countries' people and world economy.

On September 29, an expert panel organized by the Center for China and Globalization (CCG), a non-government think tank, concluded its five-day academic visit to the United States, during which the experts felt that China and the United States need to avoid bias, reduce miscalculation and enhance mutual understanding to lower the trade tensions. China and the United States have broad common interests and their divergences cannot be solved by means of a Cold War-era approach.

We believe that China and the United States should respect the progress made during the previous trade negotiations and reach a consensus on not expanding tariffs ahead of a possible meeting between Chinese President Xi Jinping and US President Donald Trump at the G20 summit.

During the tour of the United States, we were aware of the worries of many American politicians and business leaders about the two countries' trade frictions and their hope for reconciliation.

With its responsibility to play a role in promoting the mutual understanding between China and the United States, the CCG unveiled a report named "China-US Trade Relations and Challenges: Past, Present, Future and Policy Options" at the Hudson Institute, a think tank and research center dedicated to nonpartisan analysis of US and international economic, security and political issues.

The report outlines the achievements that China and the United States have made since they established diplomatic ties 40 years ago, analyzes the reasons and potential consequences of their trade frictions and gives suggestions on how to drag the two countries out of the impasse.

There are three possible directions the current trade dispute could take. The first possibility is that China and the United States would stop their tariff war through signing an agreement that follows the principle of win-win cooperation. The second possibility is that the trade dispute would continue with the two countries being mired in a vicious cycle of friction, negotiation, reconciliation and friction. The third possibility is that China and the United States would intensify their tariff war, which might become a full-blown trade war.

Considering the economic interdependence of China and the United States and their complementary roles in the global value chain, the two countries need to make mental and institutional preparation in order to prevent the bilateral relationship from getting worse, especially at a time when America's political ecosystem is undergoing a deep change.

Common interests

During the visit, many American politicians, business leaders and academics expressed concern that the trade dispute would be detrimental to the two countries' economies. At the same time, they have toughened their stance toward China possibly because of their fears about China's rising strength and its geopolitical expansion, America's trade deficit with China and Beijing's inability to protect the intellectual property.

In fact, leaders of both countries have a lot in common including their intent to protect intellectual property and opposition to mandatory technology transfer. But the two sides need to coordinate these efforts through discussions.

This view can be corroborated by our talks with many Americans, who think that China and the United States have a large space for cooperation.

In order to remove American companies' doubts about the protection of foreign technology, the Chinese government has established a set of mechanism including intellectual property courts and Internet courts to protect foreign firms' interests.

In terms of global trade system, we suggest that China should join the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) at a proper time with a change in the international situation. The CPTPP is widely seen as a complement to the global trade system typical of the World Trade Organization (WTO).

Ways out of trouble

Based on the CCG's long-term research on the China-US relationship and views we learned from the American experts during the visit, we put forward some suggestions to ease tensions between the two countries.

1. Maintain the positive results of the previous negotiations and take summit diplomacy as opportunity to make a breakthrough

When the third round of negotiations were being held, reports said that China would likely import American agricultural, energy and manufacturing products worth $70 billion. At the time, Chinese Ambassador to the United States Cui Tiankai stressed that China and the United States had reached consensuses during the negotiations. Last year, China and the United States signed big trade deals worth $250 billion when US President Trump visited Beijing. These can be seen as Beijing's bonafide to develop ties with Washington.

So, the United States should go back to the negotiating table and lift ban on exports of some US products to China, as it will take a long time to reduce US trade deficit with China.

In addition, White House officials have said that US President Trump and his Chinese counterpart Xi could meet during next month's G20 summit in Argentina, which the two countries should take as an opportunity to reach a consensus on trade problems.

2. A new agreement on the protection of intellectual property need to be signed

The trade dispute between China and the United States began with the dispute over the protection of intellectual property. Actually, China and the United States have no substantial conflict on this issue. Xi stressed at the Boao Forum the importance of protecting intellectual property, vowing to establish a new government agency to enhance the law enforcement. Therefore, China and the United States need to sign a new deal to establish a bilateral cooperation mechanism for the protection of intellectual property. Meanwhile, the two countries can also coordinate their work under the framework of the WTO.

3. The United States should be welcomed to join Made in China 2025

Chinese Premier Li Keqiang has said many times that global companies are encouraged to take part in the Made in China 2025 initiative, which aims to promote the country's industrial upgrade, thus bringing many opportunities to foreign companies including American firms. For example, numerous American firms serve as components and parts suppliers for China's first big passenger plane, the C919. China can help foreign investors to gain business opportunities in China, while aligning the Made in China 2025 plan with international standards. And the US government should readjust its policy about technology exports to China and the reform that gives the Committee on Foreign Investment in the United States (CFIUS) greater power to bar Chines investments on the US soil.

4. China and the United States should continue talks on the Bilateral Investment Treaty (BIT) and other free trade agreements.

Due to their close trade ties, China and the United States need import tax reduction, which could be a way to reduce US trade deficit with China. China and the United States should sign a free trade agreement to promote the liberalization of the bilateral trade and reduce trade disputes.

So far, China and the United States have completed the 34th round of negotiations for the BIT, and exchanged negative lists three times. Under the framework of the BIT, non-tariff barriers would be removed to ensure such trade barriers do not affect the bilateral investments. The Chinese government can also set up a committee similar to the CFIUS to ensure that foreign investors can be treated fairly.

5. China and the United States should accelerate economic structural adjustment in an effort to improve trade imbalance.

The demands raised by American firms are compatible with China's reforms. China can take the trade dispute as an opportunity to speed up the implementation of the reforms related to trade liberalization and rebuilding of state-owned enterprises. At the same time, China can continue to open its market to foreign investors to fulfil Xi's promise of offering wider market access, creating sound investment environment for foreigners and protecting intellectual property.

The United States also needs to make economic structural adjustment, increase deposits and reduce national debt. The economic globalization and income inequality have split America's elite and working class, which has given rise to populism and protectionism. To some extent, Trump's trade war reflects the discontentment of American people. So, US policymakers should care more about improving domestic policies in a bid to accelerate redistribution of interests.

6. Improve statistical method of trade data collection

China and the United States should adopt an improved statistical method to reflect the real trade value, as the two countries' data about trade surplus and deficit are different due to different calculation methods. China is an integral part of the global supply chain. In many cases, China assembles the parts produced by foreign countries and then exports the finished products to the United States. If taking into consideration this factor, US trade deficit with China would decrease by 30-40 percent. In the future, the US government should realize that its so-called large trade deficit with China could be exaggerated by American multinational companies which do not bring their earnings generated overseas back to the home base.

7. China and the United States should establish an infrastructure investment fund

China and the United States have a big space for cooperation in the area of infrastructure construction. The two countries can promote the establishment of an infrastructure investment fund that can offer financial support for projects in the United States and other countries. The United States can bring in foreign partners for its own infrastructure projects. The United States can also sell government bonds to Chinese partners, raising fund for its road and bridge related infrastructure projects.

8. China and the United States can work on WTO reforms

China and the United States are members of the WTO and should cooperate under its framework. If the United States quits the international trade organization that advocates multilateral trade, it will lose the most-favored-nation treatment offered by WTO members. At present, only 14 countries have signed free trade agreements with the United States, many of which are not its major trading partners. So, the United States should stay in the WTO and work with China for strengthening the competence of the organization.

In addition, China can consider joining the CPTPP, which boasts high standards in areas of service trade and intellectual property. China can also see the Trans Pacific Partnership as an option, as the trade agreement can help its service industry and high technology companies go global.

9. Deepen cooperation between Chinese provinces and US states

US states have a high degree of autonomy and can serve as a stabilizer for the healthy development of the China-US relationship. During our visit to the United States, some governors expressed their willingness to deepen ties with Chinese provinces and cities in order to reduce the trade frictions. So, Chines provinces and US states are suggested to set up cooperation mechanisms in push for deeper ties.

10.Strenthen people-to-people diplomacy

China and the United States should attach importance to people-to-people exchange. Besides, communication with US conservatives is still necessary for China. People-to-people exchange is a good complement to intergovernmental diplomacy and can help put the China-US trade relations back on the right course.

The author is Wang Huiyao, founder and president of the Center for China and Globalization.

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