Op-Ed Contributors

The surplus of promise

By Chen Deming (China Daily)
Updated: 2010-03-31 07:51

China will move forward in pushing for imports while dissuading exporting nations to cease their discriminatory controls

Trade and economic relations between China and the United States have developed rapidly since the establishment of bilateral diplomatic ties. Two-way trade in goods amounted to nearly $300 billion in 2009, a 118-fold increase over 1979 when the two countries entered into diplomatic relations. American businesses have invested $62.2 billion cumulatively in China.

This is evidence enough to show that cooperation is full of vitality and fits the fundamental interests of the two countries' people. The heart of China-US economic and trade relations has been and will always be cooperation based on mutual benefits and fostering win-win results.

However, some unsettling opinions have been heard recently. Some believe that the US is losing ground in its trade with China while others contend that China undervalues its currency (renminbi) to get a competitive advantage and trade surplus. Given all this, we have more reasons to listen to rational opinions.

I. Five facts about the China-US trade imbalance

Trade imbalances have been an old issue between China and the US. Its causes are complicated and therefore should be approached in a comprehensive and rational manner:

(a) The current state of China-US trade is the result of the international division of labor against the backdrop of globalization. Decades of globalization by developed countries have concurred with the continued sophistication of US industries toward high-end manufacturing and modern services. Traditional, labor-intensive industries have migrated first to Japan, South Korea and Taiwan, then to the Chinese mainland after its opening-up. China imported raw materials and semi-finished goods, and after processing, exported the finished goods to developed countries. China's deficits with neighboring economies grew concurrent with its surplus with the US.

However in the same period, Asia's share in the US trade deficit did not rise significantly. For instance, in 2009, the Chinese mainland's deficit with Japan, South Korea and Taiwan combined was $147.1 billion, a figure even larger than its $143.4 billion surplus with the US. Transnational corporations including American ones played a leading role in shaping this trend. Given the present international division of labor, traditional manufacturing industries would find it hard to return to the US even if imports from China were restricted, and the US would have to turn to other developing countries for imports.

(b) The US trade deficit with China is overestimated. The Ministry of Commerce of China and the US Department of Commerce and the US Trade Representative Office released on March 4 a study report on statistical divergence in trade in goods. The report finds that the actual US trade deficit with China for 2006 should be 26 percent lower than the official US figure.

Reasons for the statistical gap are: 1) markups on Chinese goods transiting via other economies are counted as China's surplus; and 2) in processing trade, Chinese companies normally produce by order and have little control over design, transport, sales and other activities. When the import value of goods declared at US customs are higher than the export value declared at Chinese customs, it further inflates the surplus figure. The actual US deficit with China in 2009 should be about $60 billion less than the official US figure.