There will be No Winner in a Trade War: Rationality, Equality, Credibility and Mutual Benefit are needed for Trade Consultations

June 7, 2019

By Ambassador Extraordinary and Plenipotentiary of the People’s Republic of China to the Republic of Sierra Leone

H.E. Mr. Hu Zhangliang

The international community has been closely following the China-US economic and trade relations. Many Sierra Leonean friends also want to know about the truth. On 2nd June, 2019, the Chinese government issued a White Paper named China’s Position on the China-US Economic and Trade Consultations. I would like to take this opportunity to introduce what happened to the economic and trade relations between China and the United States.

The US government while Trumpeting “America First” provoked the Economic and trade friction with China, which damages the interests of both countries and of the wider world

The current US administration has adopted a series of unilateral and protectionist measures, regularly wielded tariffs as a “big stick” and coerced other countries into accepting its demands. It has initiated frequent investigations against its main trading partners, causing disruption to the global economic and trade landscape. In August 2017, it launched a unilateral investigation under Section 301, issued a myriad of slanted and negative observations, and imposed additional tariffs and investment restrictions on China, provoking economic and trade friction between the two countries.

The three alleged main reasons for the US to provoke a trade war against China include: First, China has a large trade surplus with the US; second, China does not comply with WTO commitments; third, China acquires US technology through unfair means. But through simple analysis, one can easily find out that these three reasons are groundless or even absurd. First, the issue of trade balance is the result of international division of labor and global value chain distribution, and it cannot be discussed merely from a bilateral perspective. In 2017, China’s current account surplus accounted for only about 1.4% of GDP, and in 2018 it was 0.1% to 0.2%, which is balanced basically. China maintains trade surplus with the United States, but maintaining a deficit with other countries such as Japan etc..Second, the World Trade Organization and international community have given positive evaluations on China’s WTO commitments. The US criticizes China for having not fully fulfilled her WTO commitments, but at the same time it has initiated trade sanctions against China according to its domestic laws, which is a clear violation of the WTO rules.

What should be pointed out in particular is that the US’s accusation of China’s intellectual property protection is also baseless. China attaches great importance to the protection of intellectual property and has established an intellectual property legal system that conforms to international rules and adapts to China’s national conditions. China attaches great importance to the leading role of judicial protection of intellectual property and has achieved remarkable results. The awareness of intellectual property protection among the Chinese people and enterprises has increased remarkably, the fees for the payment of intellectual property have been greatly increased, and the number of intellectual property applications and registrations has grown rapidly. The effectiveness of intellectual property protection in China has been widely recognized.

By imposing additional tariffs on Chinese goods exported to the US, the US administration impeded the two-way trade and investment cooperation and undermined market confidence and economic stability in the two countries as well as globally. The tariff measures have not boosted American economic growth. Instead, they have significantly increased production costs for US companies, led to domestic price hikes in the US, and had a negative impact on the livelihood of US citizens. A joint report by the US Chamber of Commerce and the Rhodium Group in March 2019 showed that, under the impact of China-US economic and trade friction, US GDP in 2019 and the next four years could decrease by US$64-91 billion per year, about 0.3-0.5 percent of total US GDP.

The trade protectionist measures taken by the US administration damage the multilateral trading system, seriously disrupt global industrial chains and supply chains, undermine market confidence, and pose a major threat to global economic recovery and sustainable increase.

The China-US economic and trade consultations have experienced setbacks as the US repeatedly breaches consensus and commitments.

China had advocated resolving economic and trade friction through negotiation and consultation from the very beginning. So far China has held 11 rounds of high-level economic and trade consultations with the US, demonstrating great goodwill and positive efforts.

However, the US government backtracked at least three times and tore up the consultation conclusions. The first backtracking: In early February when the two sides made consultations on trade imbalance among other major issues and made substantial progress as they reached preliminary consensus on expanding China’s imports of agricultural and energy products from the US. However, On March 22, 2018, the US government unveiled the so-called report on Section 301 investigation of China, falsely accusing China of “IP theft” and “forced technology transfer”, and subsequently announced an additional tariff of 25 percent on US$50 billion of Chinese exports to the US.

The second backtracking: On May 19, 2018, China and the US issued a joint statement, agreeing to refrain from fighting a trade war, to continue high-level communications, and to actively seek solutions to respective economic and trade concerns. The US publicly announced that it would suspend the plan for additional tariffs on Chinese goods. But on May 29, 2018, despite the opposition of its domestic business community and the general public, the US administration tore up the consensus just ten days after the joint statement, gratuitously criticized China’s economic system and trade policy and announced the resumption of the tariff program. Starting from early July 2018, in three steps, the US imposed additional tariffs of 25 percent on Chinese exports worth US$50 billion and additional tariffs of 10 percent on US$200 billion of Chinese exports, which, according to the US, would be raised to 25 percent on January 1, 2019.

The third backtracking: On December 1 the two heads of state had a meeting on the margins of the G20 Summit in Argentina. In accordance with the important consensus on economic and trade issues reached by them, the two sides agreed to halt new additional tariffs for 90 days to allow for intensive talks geared toward the full elimination of all additional tariffs. In the ensuing 90 days, the working teams of China and the US held three rounds of high-level consultations in Beijing and Washington D.C., reaching preliminary consensus on many matters of principle for the China-US economic and trade deal. But the more the US government was offered, the more it wanted. With intimidation and coercion, on May 6, 2019, the US irresponsibly accused China of backtracking on her position with a view to shifting the blame for the inconclusive talks onto China. Despite China’s fierce opposition, the US raised the additional tariffs on US$200 billion of Chinese exports to the US from 10 percent to 25 percent, which represented a serious setback to the economic and trade consultations. On May 13 the US announced that it had launched procedures to slap additional tariffs on the remaining Chinese goods, which worth around US$300 billion.

The US government should bear the sole and entire responsibility for this severe setback to the China-US economic and trade consultations. The US government’s accusation of backtracking levelled against China is totally call white black and black white. Historical experience has proven that any attempt to force a deal through tactics such as smears, undermining and maximum pressure will only spoil the cooperative relationship and let go historic opportunities.

China is committed to credible consultations based on equality and mutual benefit in order to safeguard common economic stability and development

Chinese government rejects the idea that threats of a trade war and continuous tariff hikes can ever help resolve trade and economic issues. The two countries should push forward consultations on the basis of equality, credibility, mutual respect, mutual benefit and good faith.

It is only natural for China and the US, the two largest economies and trading nations in the world, to experience some differences over trade and economic cooperation. China and US should enhance mutual trust, promote cooperation and manage differences. For the good of the common interests of the two countries and global trade order, both sides should resolve issues through dialogue and consultation,  respect the other’s core interests and major concerns. It also means that one side should not cross the other’s “red lines”. The right to development for a country cannot be sacrificed, still the less can sovereignty be undermined.

Consultation calls for mutual understanding and genuine effort from both sides. Only by engagement with goodwill and a full understanding of the other’s position can success be achieved. Otherwise, it will be hard to reach a sustainable and enforceable deal. The Chinese government has engaged in consultations with the US with the utmost credibility and the greatest sincerity. But China will not accept any agreement that is arbitrarily imposed on her.

China will not give ground on issues of principle and China’s development will not be held back by any kind of challenges

Every country has its own matters of principle. During consultations, a country’s sovereignty and dignity must be respected, and any agreement reached by the two sides must be based on equality and mutual benefit. On major issues of principle, China will not back down. Both China and the US should see and recognize the differences between them in national development and the stage of development. Both sides should respect each other’s development path and basic systems and institutions.

China’s development may not be all smooth sailing, it will inevitably face various risks and challenges. But China is confident of meeting challenges head on, turning risks into opportunities and opening new chapters. China remains committed to its own cause no matter how the external environment changes. The fundamental solution to economic and trade tensions is to grow stronger through reform and opening up. With the enormous demand from the domestic market and deeper supply-side structural reform, the competitiveness of Chinese products and companies will be comprehensively enhanced. China still has sufficient room for fiscal and monetary policy maneuvers. China can maintain sound momentum for sustainable and healthy economic development and enjoys bright prospects.

A sound economic and trade relationship between China and the US meets the fundamental interests of the two peoples and matters to the prosperity and stability of the world. Over the past 40 years since the establishment of diplomatic ties, China-US bilateral economic and trade cooperation has developed from small to large and from single dimension to multi-dimension, because China and the US have seized the historical opportunity of world economic integration and trade and investment liberalization as well as tapping into the enormous complementary advantages of the two economies.

As His Excellency President Xi Jinping pointed out, cooperation is the only correct choice for China and the US. It is hoped that the US can return to rationality, meet China in half way, pursue the spirit of mutual respect, equality and mutual benefit, manage differences, strengthen cooperation, and jointly promote the stable and healthy development of China-US trade and economic relations for the well-being of both countries and the world.