Asia | US-China economic cooperation is the only way going forward

US-China economic cooperation is the only way going forward

Ken Moak March 31, 2017 3:15 PM (UTC+8)
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In spite of President Donald Trump’s anti-China rhetoric during and shortly after he was elected, a more constructive and cooperative US-China relationship will likely emerge after his meeting next week with President Xi Jinping. In addition to Trump’s recent conciliatory letter to Xi followed by a cordial telephone conversation, economic and geopolitical realities demand that the relationship improve.

The world’s second-largest economy is too big to coerce and impossible to contain. China has responded to what it sees as external threats by building islands in the South China Sea and deploying missiles, jet fighters and other military assets on them. In addition, China has increased — and will continue to boost — the number of submarines and surface warships to defend what it sees as US aggression. Its second aircraft carrier is expected to be launched this year. More and bigger destroyers and nuclear submarines are under construction. China is said to be building its first 40,000-ton assault ship, capable of carrying 30 armed helicopters. Even if all of Asia sides with the United States, taking down a country of more than 1.36 billion people armed with conventional and nuclear weapons without sacrificing millions of Asian and American lives is delusional.

The US and Chinese economies are closely intertwined. In spite of relentless China-bashing, two-way trade has jumped from less than US$35 billion in 1990 to almost US$600 billion last year. More than two-third of Chinese exports to the US are produced by American or US-China joint-venture firms. Moreover, the supply chain is deeply interdependent between the two countries. There was practically zero Chinese investment in the US in the 1990s, but that had risen to more than US$100 billion by 2016. US investment in China has also grown from zero in 2000 to US$228 billion by 2016 with American Fortune 500 companies leading the way.

China plays pivotal role in US economic health

China is the top export market and major investor in 33 states, according to Bloomberg. China has played a pivotal role in spurring or sustaining economic growth in California, Washington, Texas, Michigan, and other states. The cities of Chicago, Los Angeles, and Philadelphia recently signed contracts with a Chinese railway company’s US subsidiary to produce hundreds of trains. More will likely follow given America’s degraded infrastructure and Trump’s campaign pledge to rebuild it.

China’s increasingly affluent market explains why more American politicians, business people, tourists, and students travel to China. The growing Chinese economy offers the best opportunity for US enterprises. For example, Boeing has sold more than US$60 billion in aircraft to China since 2000. And states with large agricultural businesses have profited from selling chicken parts, soybeans, and other foodstuffs to China’s growing middle- and upper-middle classes now numbering almost 700 million and increasing.

Indeed, politicians representing export-dependent and investment-hungry states who denounced China have softened their criticism on trade and human-rights issues. Rick Perry, former Texas governor and US presidential hopeful, had accused China of unfair trade practices and human-rights abuses. But he changed his tune last year during a trip to China promoting Texas, calling China a great “friend” of his state. Presidential candidates, from Bill Clinton to Donald Trump, campaigned on get-tough-on-China platforms but made U-turns once in office.

Anti-China rhetoric makes no sense

Their 180-degree policy flip-flop is influenced not only by economic and geopolitical realities but also by nonsensical anti-China rhetoric. China did not “rape” America or “steal” its jobs as Trump and his trade chief, Peter Navarro, claimed. Unskilled or semi-skilled manufacturing jobs were automated. Indeed, it was America Inc.’s decision to replace polluting manufacturing with service industries that led to the closing of US factories. Accusing China of manipulating its currency to gain an export advantage and distort current-account deficit values is misleading. US trade-deficit figures are distorted, not only with China but with other countries as well. The “imports” are mostly goods produced by US-owned firms or outsourcing firms offshore. These practices are usually recorded under inter-company trade.

Moving manufacturing operations overseas has made America richer and less polluted. Low-priced imports save the average American family more than US$1,000 a year, allowing consumers to buy more goods and services. By closing its polluting factories, America is exporting pollution to other countries such as China.

China has neither the ability nor the desire to challenge US global hegemony. Its military, though capable of inflicting catastrophic damage to the US and its allies, is weaker and less advanced. China has too many problems — rampant corruption, ethnic tensions, environmental degradation, etc. — to make new enemies. President Xi is correct: US-China cooperation is the only way forward. Conflict between China and the US would a have a devastating effect not only on both countries but also on the rest of the world. Trump’s meeting with Xi April 6 and 7 would appear to indicate the US president realizes the relationship must remain open and productive. Moreover, the majority of the American public and its states want a better US-China relationship.

Ken Moak
Ken Moak taught economic theory, public policy and globalization at university level for 33 years. He co-authored a book titled China's Economic Rise and Its Global Impact (Palgrave McMillan, 2015). His latest book is titled, Developed Nations and the Impact of Globalization and it will be published by Palgrave McMillan Springer in 2017.
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