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Monday, June 17, 2019, 14:54
China must continue path of reform
By Justin Yifu Lin
Monday, June 17, 2019, 14:54 By Justin Yifu Lin

Despite unreasonable US allegations, Beijing wants a trade dispute solution that works for both sides.

The escalating China-US trade friction is drawing the world’s attention, with the US accusing China of unfair competition. Despite unreasonable demands from the United States, China must maintain firm resolve and continue with further reforms and opening-up.

I have three perspectives on the trade war.

First, trade is mutually beneficial. The US does not produce everything at home, which means it has to import. It buys from China because of the relatively low price and good quality of goods. Trade is by no means an American favor extended to China.

The US government says the country is suffering losses because of the trade deficit. When evaluating the international trade balance of a country, one should not focus on its trade with one country, but look at the overall picture of its trade with the entire world.

In international trade, some countries have a surplus, such as China, whose surplus stood at 2.6 percent last year, while others, like the US, have a huge deficit. The solution: Increase savings and reduce consumption.

The US took several measures against its trade partners in the past two years. Yet the US trade deficit continued to rise, increasing 12.1 percent last year.

Also in 2018, the US trade deficit with China rose 11.7 percent. The US government’s actions led to worsened trade ties and higher costs suffered by US consumers of Chinese goods and US manufacturers that used Chinese materials.

The US complaints against China began with accusations about the trade deficit. Now unfair trade has been added to the list, although the US has no concrete evidence to support its allegations. By taking advantage of its domestic law, the US initiated an investigation and published a report filled with guesses and speculation. As Yale professor Stephen Roach says, it is basically “evidence-less slander”.

It is natural for US companies investing in China to bring their technologies. Are they forced to do so? Of course not. And it is true that Chinese technology has enjoyed rapid development, thanks to its efforts as well as research and development.

Lawrence Summers, a former World Bank chief economist, former US Treasury secretary and president of Harvard University, says China’s technological advances are a result of its own efforts and not through forced transfer or theft.

So why is the US obsessed with making allegations of trade deficit and unfair competition? My view: an ulterior motive to contain China’s rapid development. A blockade on Huawei exposes America’s intention of cracking down on Chinese tech companies.

Second, we hope to solve trade disputes through negotiations. If that fails and the US levies 25 percent tariffs on all Chinese goods, what would be the impact on China? 

Any move to block win-win trade will affect both. Exports account for less than 20 percent of China’s gross domestic product, while exports to the US account for 19 percent of its total exports.

The impact is expected to be a reduction in growth of 0.5 percentage point in China and 0.3 percentage point in the US.

China seems to suffer more in terms of absolute quantity. The International Monetary Fund has forecast that the US would grow at 2.5 percent. If this is reduced by 0.3 percentage point, its growth rate is expected to suffer by 12 percent.

It is easier for China to maintain a growth rate of 6 percent to 6.5 percent. This means that despite a 0.5 percentage point loss, the country would grow at a rate of 6 percent.

Since the collapse of Lehman Brothers, a global financial services firm, triggered the international financial crisis in 2008, China’s contribution to the world’s economy has been above 30 percent.

The world’s economy is predicted to grow 2.9 percent, according to the World Bank, and 3.5 percent according to the IMF. Despite the ongoing trade friction, China is expected to contribute 30 percent to the world’s economy and remain the largest contributor.

Third, China is ready to talk to the US for a solution that works for both sides. Despite the unreasonable US allegations, we should maintain our resolve, stay on the path of reform and opening-up and pursue high-quality development by carrying out the new philosophy of innovative and open development for all, as proposed by President Xi Jinping.

If China’s exports to the US decline due to the trade conflict, its imports from the US would drop as well.

What matters most to the world is development, and China’s opening-up will create chances of common development for the globe. I hope we stay on the path of reform and opening-up to share opportunities with countries willing to maintain sound relations with China. I also believe that US entrepreneurs and ordinary people are also willing to share China’s opportunities.

The author is honorary dean of the National School of Development at Peking University and a former chief economist of the World Bank. 

The views do not necessarily reflect those of China Daily.

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