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US-China relations
OpinionComment

The US and China can beat the trade deficit with a treaty, not all-out war

Lawrence J. Lau says the first US-China economic dialogue ending without an agreement was not wholly unexpected, and calls for a bilateral investment treaty as a winning way to the future for both countries

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Lawrence J. Lau says the first US-China economic dialogue ending without an agreement was not wholly unexpected, and calls for a bilateral investment treaty as a winning way to the future for both countries
Lawrence J. Lau
There is little doubt that closer China-US economic cooperation is a positive-sum game – both countries can win. Any all-out trade war will be damaging for both. Illustration: Ingo Fast
There is little doubt that closer China-US economic cooperation is a positive-sum game – both countries can win. Any all-out trade war will be damaging for both. Illustration: Ingo Fast
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The first China-US Comprehensive Economic Dialogue concluded in Washington on July 19 without an agreement. There was no joint communiqué. Even the scheduled separate press conferences were cancelled, first by the US, and then by China. What does this mean for their economic relations in the future?
First of all, such an outcome is not totally unexpected. For domestic political reasons, neither China nor the US can appear to make ­significant concessions at this time. On the Chinese side, the critical 19th congress of the Chinese Communist Party will be held within the next three months, and it is important for China to project confidence and strength. On the US side, President Donald Trump has not had much luck in fulfilling his campaign promises, such as repealing president Barack Obama’s ­Affordable Care Act, the building of a wall along the entire Mexican border, and renegotiating the North American Free Trade Agreement. The North ­Korean problem continues to look intractable. And there is the ongoing investigation of the Russian connection. Other proposals, such as the tax cut and the rebuilding of infrastructure, have not advanced. Trump needed a visible win, not a compromise, on this one.

US-China trade must be a two-way street

Further, it is useful to note that neither China nor the US are accustomed to treating another country as a friendly equal. This makes negotiations between the two more difficult, ­because the usual proven approaches that work with the ­other countries do not necessarily work in this case.

US Treasury Secretary Steve Mnuchin and Chinese Vice-Premier Wang Yang arrive for the US-China Comprehensive Economic Dialogue in Washington, on July 19. Photo: AP
US Treasury Secretary Steve Mnuchin and Chinese Vice-Premier Wang Yang arrive for the US-China Comprehensive Economic Dialogue in Washington, on July 19. Photo: AP

China upset at high US tariffs on steel imports

Some of the American demands at the dialogue were actually not supported by even US businesses. For example, the lowering of automobile tariffs in China is not welcomed by General Motors or Ford, which have large manufacturing operations in China and benefit from the existing tariffs. The US threatened to impose quotas or ­tariffs on the imports of Chinese steel and aluminium. But these Chinese goods ­account for only a very small percentages of the total US imports of steel and aluminium, and will do very little to narrow the trade deficit. So any such action is merely symbolic.

The bilateral trade deficit is actually not as large as it appears
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