The second session of the semi-annual
US-China Strategic Economic Dialogue in Washington
achieved modest results, but on the major issues
of significant concerns to Washington, the talks
did not resolve any differences.
If
anything, divergent views may have been even
amplified, with the US side admonishing China to
take major steps to address its trade imbalance
with the US while the head of the Chinese
delegation, Vice Prime Minister Wu Yi, warned
against
protectionism and politicizing
bilateral trade issues.
The problems
remain huge. The US trade deficit with China stood
at US$232 billion in 2006 and keeps growing. The
US side called for Beijing to remove barriers to
the entry of foreign companies to China's
financial markets and allow a greater valuation of
the Chinese currency. Food safety, labor standards
and enforcement of intellectual-property rights
were also raised during the talks, without
concrete action.
The two-day meeting did
result in agreements on doubling passenger flights
between the two countries by 2012; joint
development of clean coal-burning technologies;
and energy cooperation. China's central bank
announced - just prior to the meetings - that it
would allow a wider band within which the Chinese
currency is permitted to float against foreign
currencies. Chinese delegations also made $30
billion in purchases to ease trade imbalances.
If the first session of the dialogue last
December started the process of focused
interaction between the world's fastest-growing
economy and its strongest, the latest round served
to highlight key differences and explore
solutions.
But US patience is wearing
thin. While the administration has been resisting
congressional pressure, hoping the talks will
generate tangible and acceptable results, the
Democrat-controlled Congress could resort to
punitive measures against China for intervening to
keep the value of its currency low and subsidizing
exports.
But such legislative action may
be based more on domestic political calculations
than on hard economic analysis. It could seriously
harm both Chinese workers and American consumers
and undermine economic and relations.
While the Chinese currency is being kept
artificially undervalued, this may not be the
sole, or even the most important, factor causing
American economic woes, according to economists
and analysts. Using historical data, they suggest
that over the past decade, the Chinese share of
total US imports has not changed significantly,
growing only slightly, even though its currency
has remained undervalued. With the US unemployment
rate at about 4.5%, it is hardly a convincing
argument that Chinese trade practices are taking
US jobs.
This is not to say that China's
trade practices are totally sound economics.
However, the export-driven Chinese economy is the
result of a combination of factors, including
deliberate government policy and globalization.
China remains attractive for multinational
corporations, with its well-developed
infrastructure in the coastal regions and
abundance of cheap labor.
China needs
exports to keep unemployment low because domestic
markets are weak and savings rates are too high.
These in turn are due to the underdeveloped social
safety net. Only a small percentage of employees
have pension plans and unemployment insurance, and
costs for education and health-care are rising
fats. This is why the government hesitates in
allowing the yuan to appreciate too fast, since it
would cause a significant rise in unemployment as
Chinese goods would become less competitive.
Clearly, keeping the currency undervalued
is not a sustainable strategy. However, a
comprehensive approach is needed to spur domestic
consumption, which in turn is only possible when
the social safety net is in place. This requires
time. Beijing could also take steps to strengthen
domestic regulations and implement more forceful
enforcement of intellectual-property protection.
The US administration should be commended,
so far, for staying the course of working with
China to address trade-related issues. Sino-US
economic relations are becoming ever more complex,
and easy solutions to disputes and differences are
hard to come by. With all the blame thrown on
China, it should be noted that the US has
sustained the fastest growth rate in exports to
China since the latter joined the World Trade
Organization in 2001. American consumers have
benefited from low-priced Chinese goods.
A
trade war between China and the United States
could be costly to both sides without solving
America's trade imbalances. Washington and Beijing
should treat their differences and disputes as
fundamentally economic problems in a world economy
increasingly defined by globalization, which
requires constant changes and adaptation if one is
to survive, sustain growth and prosper. China and
the US face different problems of adjustment, and
need to look after different constituencies.
The challenge is to seek solutions through
dialogue and cooperation rather than confrontation
and threats. In this sense, the US-China Strategic
Economic Dialogue has achieved its main purpose in
this round of talks, even though the tangible
results may look far less significant.
Dr Jing-dong Yuan is director of
the education program at the Center for
Non-proliferation Studies and an associate
professor of international policy studies at the
Monterey Institute of International Studies.
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