China, U.S. need to cooperate to resolve trade disputes

Updated 2017-11-07 17:31:57 Xinhua

As U.S. President Donald Trump Wednesday starts his first official trip to China putting trade issues high on his agenda, one thing he should bear in mind is that the two countries need to cooperate to resolve their trade disputes.

No one can deny that the current China-U.S. economic and trade relationship is a win-win for both sides.

China and the United States are now each other's largest trading partner.

China purchased 165 million U.S. dollars in goods and services from the United States in 2015 and this figure is still increasing, according to a report released by the U.S.-China Business Council in January.

China-U.S. trade relations have supported roughly 2.6 million jobs in the United States, the report said.

However, the fact that the U.S. economy has benefited from the China-U.S. trade relations has been overlooked by some U.S. politicians, who focus only on the trade deficit.

But the U.S. trade deficit with China, referring only to trade in goods, has been exaggerated. The trade in services is in surplus.

In 2016, the U.S. trade deficit in goods with China was 347 billion U.S. dollars. However, China did not gain as much as the figures showed.

China is currently at the low-end of the global industrial chain and has not benefited much from processing industries. But the products that are processed in China and exported overseas are counted as China's exports.

If calculated through the value-added approach instead of the existing rules of origin in trade, the U.S. trade deficit with China will be only half of the current volume, the U.S.-China Business Council said.

Secondly, the United States has benefited a lot in international trade despite its trade deficit in goods.

If Washington wants a trade surplus in goods, it must invest substantially in domestic manufacturing to produce goods. Other countries such as China have advantages in labor-intensive industries compared with the United States.

Therefore, the United States has a great amount of investment abroad including in China, and the products manufactured under U.S. overseas investment projects that it imports have greatly spurred domestic consumption.

"U.S. assets abroad tend to be very high return ... whereas foreign investment into the U.S. is in Treasury bonds. So the income from the American assets is way bigger than from the liabilities -- if you look at it that way, the capital account is structurally in surplus -- you can't have a trade surplus as well," Jim McCaughan, CEO of Principal Global Investors, told CNBC.

In fact, the Unites States also has trade deficits with Japan, Germany, Canada and Mexico. So will Washington launch trade wars with those countries?

It is believed that if the U.S. trade in goods shows surplus some day, it would indicate the United States has not performed well in capital operation and overseas investment, a scenario Washington probably does not want to see.

It is advisable that the trade disputes between China and the United States be resolved through bilateral trade negotiations within the framework of the World Trade Organization instead of unilateral sanctions.

After all, the long-term stability of the China-U.S. economic and trade relations -- the ballast stone of bilateral ties -- benefits both.

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