WASHINGTON • A group of prominent economists from the United States and China has called for the world's two largest economies to abandon their trade war and agree to a new path forward that would give both countries more latitude to pursue their own domestic economic policies and hit back at those that hurt them.
In a joint statement issued yesterday, 37 economists - including Dr Joseph Stiglitz, Dr Michael Spence and three other Nobel Prize winners - bemoaned what they said has been a descent of the trade war into a binary debate, where the only solutions are either wholesale economic reforms by China leading to a converging of economic models or an economically damaging "decoupling".
The group said a more sensible framework for future trade relations would give China room to pursue industrial policies that are often a target of US criticism, while allowing the US latitude to respond with targeted tariffs if China's policies were damaging its interests.
"We believe this approach preserves the bulk of the gains from trade between the two economies, without presuming convergence in economic models," the statement said. It would also be in line with the current multilateral system, they argued, although it would enlarge both the US and China's rights under current World Trade Organisation (WTO) rules.
The push is emblematic of the ways in which economists and other thinkers are wrestling with how to respond to US President Donald Trump's challenge to the governance of the global economy.
While many countries have circled the wagons to try and protect the WTO and other institutions from Mr Trump's attacks, there is a growing acknowledgement that the system has not worked in addressing China's economic rise and its effect on other economies.
It comes as Mr Trump is working to close what he has described as "phase one" of a trade truce with China designed to avoid a further escalation of the trade wars.
It would see China commit to resuming agricultural purchases from the US at levels similar to those before Washington started imposing new tariffs last year, and would put on hold the threat of further US duties. It is also expected to include commitments on intellectual property reforms and currency manipulation by China.
But the interim deal, which Mr Trump has said he hopes to sign with Chinese President Xi Jinping next month, would crucially push discussions of other US complaints to later rounds of negotiations.
The effort unveiled yesterday was led by New York University law professor Jeffrey Lehman, Harvard economist Dani Rodrik and Dr Yang Yao, dean of the National School of Development at Peking University. The statement's other signatories include former World Bank chief economists Justin Yifu Lin and Kaushik Basu.
Dr Rodrik said Mr Trump's trade attack on China has shifted the debate on how to manage the economic relationship into dangerous territory, adding: "What he is doing is crowding out space for a more reasonable discussion."
At the same time, Dr Rodrik said: "China brings to a head the fundamental tensions of the world trading regime like nothing else." He added that policymakers need to realise their expectation that China would simply "fall into line" with global trading rules had not worked.