Jason Howie

The partnership between China and the United States, where each nation regards the other a potential adversary as well as a strategic partner, has been described by world leaders and academics as the world’s most important bilateral relationship of the century. Despite growing commercial ties, the bilateral economic relationship has become increasingly complex and often charged with tension. For example, on February 4th, 2017, China urged the United States to correct its “unfair decision to impose high anti-dumping and countervailing duties on imports of Chinese stainless steel sheet and strip”, according to a statement released by the Chinese Ministry of Commerce (MOC). This was a reaction to a statement made by The US Department of Commerce, a few days before, deciding that imports of Chinese stainless steel sheet and strip will be subject to anti-dumping duties from 63.86 percent to 76.64 percent, and anti-subsidy duties from 75.6 percent to 190.71 percent (dumping is a practice when firms sell products abroad with a price cheaper than the price of the exact same products in the home country, usually with the aim to gain market monopoly power in the foreign country).

Scope of US-China Trade Relations and its Prospects with Trump in the White House

Currently, the United States has the world’s largest economy and China has the second largest. This is when taking market exchange rates into account. However, IMF estimates that China’s economy has overtaken that of the United States in terms of GDP, adjusted to purchasing power parity. Both countries constitute more than 30% of world economy, which reflects the significance of the two countries and their bilateral relations to the rest of the world.

U.S.-China economic ties have expanded substantially over the past three decades. Total U.S.-China trade (Current $ market value of Exports+Imports) rose from $2 billion in 1979 (when economic reforms began) to around $600 billion in 2016. In the same year, China was the United States’ second-largest trading partner (After Canada), its third-largest export market, and its largest source of imports.

Many U.S. firms view participation in China’s market as critical to staying globally competitive. General Motors (GM), for example, which has invested heavily in China, sold more cars in China than in the United States each year from 2010 to 2015. In addition, U.S. imports of lower-cost goods from China greatly benefit U.S. consumers, and U.S. firms that use China as the final point of assembly for their products, or use Chinese-made inputs for production in the United States, are able to lower production costs. China is the second-largest foreign holder of U.S. Treasury securities ($1.1 trillion as of October 2016), and its purchases of U.S. government debt help keep U.S. interest rates low.

Over the last eight years, Chinese President Xi Jinping (and his predecessor, Hu Jintao) along with U.S. President Barack Obama managed to strengthen trade ties, and increase the expansion of trade volume. However, under Trump administration, bilateral trade relations between China and the United States are likely to experience some disturbances, which exposes the fact that the ever-growing bilateral economic and trade relations lack a deserved institutional framework, and still can be dependent on personal views of political leaders on both sides. Trump believes that the expansion of economic ties between the US and China has costed many Americans their jobs, which have been outsourced to China over the past decades. One promise of his presidential campaign was to work on restoring American jobs, especially manufacturing jobs that were lost to competition to lower waged Chinese workers. However, the US as a member of the World Trade Organization is constrained in its scope of action. Within the WTO framework, the United States under Trump is expected to press China harder on trade cases, intellectual property rights infringement, and the exfiltration of commercially valuable proprietary data (aka, cyber-enabled economic espionage); and it may continue to make noise about China’s deliberately devalued currency that makes its imports more competitive. It is important to note that the current U.S. goods trade deficit with is around $1 Billion a day!

After Trump’s recent move with the executive order withdrawing the US from Trans Pacific Partnership (TPP) (a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam), the new US administration seems to be taking the US economy from a period that has been characterized by a continual lowering of barriers and expansion of ties with trading partners, to the opposite direction. This direction will most likely affect the trade relations between the two world economic poles, the USA and the People’s Republic of China.