Beijing, Washington need to cooperate to resolve trade disputes

As US President Donald Trump on Wednesday embarked on his first official trip to China putting trade issues high on his agenda, one thing Trump 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-US economic and trade relationship is a win-win for both sides.

China and the US are now each other’s largest trading partners.

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

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

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

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

In 2016, the US trade deficit in goods with China was $347 billion. 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 US trade deficit with China will be only half of the current volume, the US-China Business Council said.

Secondly, the US 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 US.

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

“US assets abroad tend to be very high return ... whereas foreign investment into the US 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 US 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 US trade in goods shows surplus some day, it would indicate the US 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 US 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-US economic and trade relations – the ballast stone of bilateral ties – benefits both.