The re-election of US President Barack Obama should have a neutral to slightly positive effect on the China-US trade relationship.

His re-election means that the current US trade policy framework will more or less continue, which China has experience with, and will not affect trade ties. But the re-election, having avoided a period of uncertainty, will have a slightly positive impact on relations. Here's why:

More trade and investment growth seen for the next four years

In the first term of Obama's presidency, there was solid growth in China-US trade and investment. According to China Customs statistics, China-US trade reached $355.4 billion, a 9.1-percent increase from a year ago and 1.3 percent higher than China's global trade growth rate. Over the year, China's exports to the US will hit $390 billion and imports from the US will reach $146 billion. If the current tempo persists, US could double its exports by 2014 in the Chinese market.

Cross-border investment has also witnessed a significant growth, especially in China's investment in the US. According to a report by the New-York based Rhodium Group, China's investment in the US hit $6.3 billion, almost double the amount from a year ago.

All the political and economic frictions have failed to change this trend. Economic fundamentals are key to this trend, not the rhetoric from Washington's politicians.

The next four years will be tough for the global economy, with the euro debt crisis escalating. The US economy will most likely continue its slow recovery, with a jobless rate falling to 6 percent in 2015. China, at the same time, will likely undergo a fundamental restructuring over the last three years of the 12th Five-Year Plan (2011-15). Both countries will need each other and in industries such as alternative energy, shale gas, smart grid, information technology and electronics, automotives, tourism, logistics and finance, further growth in two-way trade and cross-border investment can be expected. Total two-way trade volume by 2016 will hit $800 billion. US direct investment will stay at around $4 billion to $5 billion per annum in the next four years, while China's direct investment will grow robustly, hitting $15 billion in 2016.

New protectionism will continue

A distinct feature of Obama's trade policy during his first term has been protectionism. He approved a special duty on Chinese tires during his first year in office. This year, the Obama administration stepped up anti-dumping and countervailing duties against China, covering solar cells and auto parts among others. Unlike trade cases in the past, when a consistent period of surging imports and falling prices from China remedied the friction, Obama's actions came simply because of a surge in imports.

US imports of autos and auto parts from China increased by 131.7 percent from 2005 to 2011, or from $3.8 billion to $8.8 billion. However, US exports of autos and auto parts to China increased by 556.4 percent, or from $1.01 billion to $6.6 billion. And US jobs in these sectors increased from 721,700 in July 2011 to 789,500 in July 2012, a hike of 9.4 percent. Nonetheless, accusations against China's illegal activities persisted. Why? Because of the high jobless rate in the US auto sector. It can be expected that, as long as the jobless rate in manufacturing remains high in the US, which seems likely for at least the next two years, the quantitative protection against China will continue. Computers and electronics as well as telecom equipment will most likely be the next targets.

Strategic distrust and economic system disaccord

President Obama issued an executive order in late September blocking China-based Sany Group's wind farm acquisition in Oregon over national security reasons. Around the sites, the US Navy conducts training and develops drones. It was the first time that a US president blocked a foreign acquisition in 20 years. Ten days later, the House Intelligence Committee issued a report blocking Huawei and ZTE's access to the US market based on national security reasons. Contrarily, Softbank Corp, based in Japan, acquired a majority stake in Sprint Nextel Corp almost at the same time without encountering a single whiff of opposition in the US. These two cases highlight the profound US strategic distrust of China.

Obama trade policy on China has also advanced from individual cases to an overall strategic position. The Obama administration regards China as a nation that skirts the rules and challenges the world trade rules system. The US blames China for government control and SOE monopoly and for imposing various subsidies on their own industries, thus creating an unfair competitive advantage against US companies, either in the US or in world markets. This basic approach covers a wide array of industries and service sectors. Obama made this very clear in his election campaign in which he repeatedly attacked China.

The root cause lies in the interests of US labor groups, who vehemently attack China for taking away their jobs, as well as Obama's mission to revive manufacturing in the US. This trend will only gain momentum during Obama's second term in office.

Manufacturing returns to America: Does a head-on conflict await?

Increasing evidence has shown a slight growth in US manufacturing during Obama's first term, especially over the past two years. His second term will see this trend continue. China, on the other hand, has shown repeatedly that it wants to move away from being the manufacturer of the world. It has vigorously grown its shale oil gas production, and energy costs are going down. Inflation is on the rise in China and investments based primarily on cost considerations may shift from China back to the US. However, those based on market considerations will follow a different path. Ford Motors, for example, announced earlier this year that one of its auto parts plants is heading to China, creating 2,000 jobs. Meanwhile, it also announced a plan to build two assembly plants in China with a goal of doubling its capacity in the country by 2017. The return of manufacturing to the US could offer good chances for direct investment in the US, which would create American jobs and expand the parent company globally.

For the next four years, Obama will continue to grow manufacturing bases in the US, thus resulting in various conflicts with China on the one hand, and creating numerous chances for China on the other.

Cautiously optimistic

The American Chamber of Commerce in China white paper in 2012 showed that 68 percent of their surveyed member companies had profitability in China higher or equal to that in the rest of the world and 81 percent of the respondents put their primary goals for its investments in China as achieving strong sales in Chinese markets, importing from the US, or selling to China's neighboring markets. It shows US companies need to expand business in the enormous and rapidly growing Chinese market and also that the US economic recovery needs Chinese investments.

For China, innovation and cutting-edge technologies from the US fit nicely with China's industrial restructuring and progress. This relationship constitutes the solid foundation of trade and investment between the two nations. I'm cautiously optimistic about China-US business relations.

The author is co-director, China-US-EU Study Center, China Association of International Trade.

(China Daily 11/09/2012 page13)