'More friction expected' as US seeks to redress trade imbalance with China

Major trade imbalances remain between China and the US, and attempting to redress them will result in further friction, said the chairman of the American Chamber of Commerce in China, on Jan 30, 2018.
Major trade imbalances remain between China and the US, and attempting to redress them will result in further friction, said the chairman of the American Chamber of Commerce in China, on Jan 30, 2018. PHOTO: REUTERS

BEIJING - Redressing major imbalances in trade relations between the United States and China could mean further friction between the two sides, the head of an American business group has said.

Beyond the trade deficit that the US had with China, there was also imbalance in market access in China, Mr William Zarit, chairman of the American Chamber of Commerce in China, said on Tuesday (Jan 30) when he presented the results of a survey by the chamber on the business climate in China.

"Major imbalances in the commercial relationship between the US and China remain, and it is hard to see how they can be redressed without generating further friction between the two sides," Mr Zarit said.

The survey noted that an "astounding" 75 per cent of the chamber's members felt increasingly unwelcome in China. But the figure was down from the 81 per cent in 2016 and 77 per cent in 2015.

Close to half of the respondents - 46 per cent - said they were being treated unfairly when it came to China's policies and enforcement, down from 55 per cent in 2016.

Interestingly, more than half or 59 per cent of those in the technology and research and development-intensive industries believed foreign firms were treated unfairly compared to Chinese companies.

China is trying to move up the manufacturing value chain through its Made in China 2025 plan to boost manufacturing innovation and promote homegrown products. Western firms have been wary of this, contending that it reduces competitiveness of foreign firms in China by providing government assistance to Chinese firms.

Among the top challenges for businessmen in 2018, according to the AmCham survey, were inconsistent regulatory interpretation and unclear laws (60 per cent), regulatory compliance risks (37 per cent) and increasing Chinese protectionism (32 per cent).

The others were rising labour costs and shortage of qualified workers.

Still, many of the survey respondents - some 46 per cent - were confident the government would further open China's market to foreign investment within the next three years. The figure is up from 34 per cent in the previous year.

This is as Chinese leaders like President Xi Jinping have in international arenas like the Davos forum pledged that China would open up its markets further to foreign firms.

The survey also indicated growing optimism about the state of US-China ties although Mr Zarit was guarded about the result.

Thirty-six per cent of respondents expected bilateral ties to improve in the new year, up from 17 per cent in the previous poll.

Mr Zarit, however, cautioned that this could be because the survey was done around the time of US President Donald Trump's successful visit to Beijing in November last year. "This may show more optimism than we may otherwise see," he remarked.

The survey was conducted between Oct 23 and Nov 26, with 411 out of 849 members surveyed returning the forms.

During his campaign for the White House, Mr Trump had threatened to take action to redress the trade imbalance in favour of China which he said was costing jobs in the US. However, since coming into office and through most of last year he held off taking action on the issue while seeking China's help on the North Korean nuclear issue. Mr Trump had also built a rapport with Mr Xi that many thought helped stabilise a complex bilateral relationship.

However, earlier this month the US president decided to slap high tariffs on solar panels and washing machines, both of which China exports to the US.

American media have reported that the White House was planning to roll out "hard-hitting" policies to punish China for "unfair" trade practices. Analysts have warned that China would retaliate if the US were to follow up on the new tariffs on washing machines and solar panels with more broad-based tariffs on Chinese exports to the US.

Mr Zarit said that a trade war would not be helpful to US businesses in China.

However, he also noted that there has not been much progress in addressing the trade imbalance despite several rounds of dialogue between the two sides.

He said some pressure might be needed to "get us more progress to a more balanced commercial relationship".

While US firms might not like measures like tariffs, they would understand if such pressure was needed to bring about change, he added.

But he told The Straits Times later that he hoped it won't take a lot of painful action by both sides to achieve a more balanced trade relationship.

"I'm hoping that policy makers on both sides will address this maturely and not do much that will harm each other's economy," he said.