China: From humble student of world trade to staunch defender

Amid its trade dispute with the US, China champions the rules-based trade system and wants more regional cooperation

The recent trade friction between China and the United States has drawn increasing attention and given rise to the concern about a possible trade war. This is because nothing less than the future of the global free trade system and the global economy hinges on it.

The friction started when the US unilaterally announced extra tariffs on imported Chinese products worth US$50 billion (S$68 billion), and then threatened tariffs on an additional US$100 billion of imports from China. The US claimed that it was China's unfair trade practices that created the huge trade deficit.

It is true there is a trade imbalance between China and the US, but this hardly justifies the use of unilateral trade sanctions and violation of World Trade Organisation (WTO) rules. As many commentators worldwide have noted, there are many reasons behind the US trade deficit that have little to do with Chinese imports.

REASONS FOR THE US TRADE DEFICIT

First, the US trade deficit with China is closely linked with the globalised division of labour. For example, electronics accounts for a considerable part of China-US trade.

These electronic products exported to the US are assembled in China with numerous components imported from other countries, and the added-value created in China is quite small. As such, it is highly unreasonable to book the value of all these components as China's surplus and the US' deficit. Following such logic, if all countries with a trade deficit put the blame on their trading partners, there might be no international trade at all!

Moreover, different methods used by China and the US for collecting and calculating trade data cause statistical discrepancies. The entrepot trade, as well as trade in services, has further enlarged such discrepancies.

For example, US trade data considers goods shipped to the US via entrepot trade through other economies as Chinese imports. Its data also does not include trade in services, for which the US would enjoy a surplus with China. The US trade deficit vis-a-vis China would not look that huge if entrepot trade was excluded and trade in services included.

Second, a fundamental reason behind the US trade deficit with China lies in the US economic structure. For decades, the US has been importing huge amounts of products to sustain its high-level domestic consumption, which outweighs the US' production capacity.

US purchases may be funded by debt. In this way, its consumption is actually sustained by the savings and investment of other countries. It is this low-saving, high-consumption model that has destined the US to run deficits with China and many other countries. In other words, the US deficit is a structural problem of its own, not a problem caused by China's trade policy. What China needs is a balanced and sustainable trade relationship.

Third, the US government puts restrictions on exports to China, which push the trade deficit with China much higher. According to a study by the Carnegie Endowment for International Peace published last April, should the US adjust its export barriers against China to those applicable to Brazil, the US-China trade deficit could have been narrowed by up to 24 per cent. If lowered to France's level, the US deficit could have narrowed by as much as 34 per cent. So, it is not China that rejects the US products or its advanced industries, but rather, it is the US that rejects China's market.

The US also accuses China of stealing its intellectual property rights (IPR). This ignores the remarkable efforts made by China in protecting IPR. Innovation has long been China's national strategy and it has improved its IPR regime. Last year, there were 1.382 million applications for invention patents in China, outnumbering figures for the US, Japan, South Korea and the European Union combined, and Chinese enterprises spent as much as US$28.6 billion on patent licensing.

Without the great emphasis and vigorous protection of IPR, the Chinese economy would not have seen so many new industries - such as in e-commerce, robotics, mobile payments and artificial intelligence - driving synergies for growth.

CHINA-US RELATIONS In 2001,

China was welcomed to the WTO, to the applause of the US and the Western world. Since then, China, like a humble student learning the trade rules, has integrated its own development into this system. Today, China is a staunch defender of and contributor to the global rules-based system. In contrast, the rule-maker is behaving more like a rule-breaker, breaching what it once cherished so dearly. It bears reminding that rules are made to be followed, not discarded when convenient.

The US tries to paint itself as a victim of trade problems with China. But it made unilateral demands of trade tariffs, which suddenly escalated threefold from US$50 billion to US$150 billion. This shows not only the US' arrogance towards China, but also its disdain of the global trade system.

Chinese workers at a port in Qingdao, in China's eastern Shandong province. At the recent Boao Forum for Asia Annual Conference, Chinese President Xi Jinping announced a series of measures opening the Chinese market further and solemnly pledged that
Chinese workers at a port in Qingdao, in China's eastern Shandong province. At the recent Boao Forum for Asia Annual Conference, Chinese President Xi Jinping announced a series of measures opening the Chinese market further and solemnly pledged that China will translate these measures into reality without delay. PHOTO: AGENCE FRANCE-PRESSE

Worldwide, there is a growing consensus that anti-globalisation and protectionism only generate endless troubles. Anti-globalisation is not the solution to the problems caused by unfettered globalisation, and protectionism is not the right medicine for the "illnesses" caused by free trade.

As two major countries in the world, how should China and the US work together and what responsibilities must they shoulder for the world? These are the questions of our time.

Chinese President Xi Jinping has laid out China's solutions in his keynote speech during the Boao Forum for Asia Annual Conference on April 10. He advocated that no country can stay aloof or immune from the world, and only peaceful development and win-win cooperation benefits all parties.

Mr Xi also announced a series of measures opening the Chinese market further and solemnly pledged that China will translate these measures into reality without delay. These measures demonstrate China's responsibility in upholding the global free trade system and its desire to share its development dividends with the rest of the world.

Singapore's Prime Minister Lee Hsien Loong also attended the Boao Forum and made a successful visit to China. Leaders of China and Singapore had in-depth discussions on cooperation in the Belt and Road Initiative and the Southern Transport Corridor. The two countries also agreed to boost third-party cooperation, promoting greater collaboration between Singapore and Chinese companies in third-party markets in Belt and Road countries. These initiatives display a common vision for the progress of regional cooperation through bilateral collaboration. They are also major steps to showcase the historical trends of peace, cooperation, openness, connectivity, reform and innovation.

China and Singapore are working together for the early conclusion of an upgraded bilateral free trade agreement and the Regional Comprehensive Economic Partnership. They are also working on the early entry into force of an upgrade to the China-Asean free trade agreement and the building of the Asia-Pacific free trade area.

At the same time, China is ready to strive with the international community for open and win-win cooperation, and contribute to a better world with a new type of international relations and a better shared future for all.


 • Hong Xiaoyong is the Chinese Ambassador to Singapore. He took up the post last month.

A version of this article appeared in the print edition of The Straits Times on April 25, 2018, with the headline 'China: From humble student of world trade to staunch defender'. Print Edition | Subscribe