The Truth about China-U.S. Trade War

（By H.E. Mr. LU Kun, Ambassador of the People's Republic of China to the Commonwealth of Dominica）

Recently, economic and trade dispute between China and the U.S. has become a global concern. Wielding tariffs as a "big stick", the current U.S. administration has unilaterally provoked economic and trade frictions with China since March 2018, when it launched an investigation under Section 301 against China. China has had to take countermeasures to defend the interests of the nation and its people while at the same time, engaging in multiple rounds of economic and trade consultations with the U.S. in an effort to stabilize the bilateral commercial relationship and the world economy.

In order to justify its initiation of the trade friction, the U.S. has accused China of pursuing trade surplus and of stealing intellectual property. Such claims are totally groundless.

The Myth of Trade Imbalance

One, the U.S. deficits are overstated. The U.S. Department of Commerce announced that its trade deficit with China in 2018 was 621 billion U.S. dollars, but did not announce a trade surplus of 150 billion U.S. dollars in services. The U.S. also counted re-exported goods from Hong Kong and Taiwan originating from the mainland to the U.S. in the total profile of China's exports, while the U.S. re-export to China through Hong Kong and Taiwan was not counted. This specially-oriented double standard will inevitably lead to data distortion. Recently, the Chinese Ministry of Commerce released the Research Report on US Gains from the China-US Trade and Economic Cooperation. With calculation based on the joint study of Chinese and U.S. commerce authorities, the Report proves that overall U.S. trade deficit to China should be around 153.6 billion dollars. That is only 37 percent of what the U.S. claims.

Two, the main responsibility for the trade imbalance between China and the U.S. is not in the Chinese side. First and foremost, trade is a spontaneous behavior of the market, and China has never imposed business deals on others. Trade deficit results from, among other things, differences between countries in industrial competitiveness, economic structure, stage of development, international division of labor and trade policies, as well as the international currency status of the U.S. dollar, the low domestic savings rate and the mass consumption within the U.S., and the export restrictions of the U.S. side on high-tech products. Therefore, the root of the U.S. trade deficit problem is in the U.S. itself.

Three, the U.S. has actually reaped substantial gains from the bilateral economic and trade cooperation. Since China and the U.S. established diplomatic relations in 1979, bilateral goods trade surged from 2.5 billion U.S. dollars to 633.5 billion dollars last year and two-way direct investment totaled nearly 160 billion dollars in the past four decades. China and the U.S. are each others' important trading partners and beneficiaries of such a complementary relationship. In fact, 54 percent of China's goods trade surplus from the U.S. was generated by foreign firms and 53 percent of the surplus came from processing trade. China only earned from limited processing charges while the U.S. took the lion's share of profits from designing, parts supply and marketing. Moreover, the U.S. exports to China supported more than 1.1 million American jobs from 2009 to 2018. The sales revenue of U.S. firms in the Chinese market exceeded 940 billion dollars in 2017. Importing high-quality products at a low price from China helps the U.S. keep comparatively low inflation and reduce its production costs. All of these speak to the fact that the U.S. is not losing, but instead, gaining huge benefits from the Chinese market.

Intellectual Property Theft?

China's technological innovation is based on self-reliance and hard work. Now, in terms of some key innovation indices, China is already among the world's leading players. In 2017, total R&D investment in China reached RMB 1.76 trillion, ranking second in the world. The number of patent applications reached 1.382 million, ranking No. 1 in the world for the seventh consecutive year. China ranks third in the world in terms of valid invention patents held.

Meanwhile, China is fully committed to intellectual property protection. It has established a legal system for the protection of intellectual property that is consistent with prevailing international rules and adapted to China's domestic conditions. Many of the concerns raised by foreign firms doing business in China have already been addressed through judicial reform and a strengthened enforcement mechanism. The effective impact of China's intellectual property protection has won broad international recognition.

In fact, this friction between China and the U.S. extends far beyond trade issues. It is confrontation between free trade and protectionism, multilateralism and unilateralism, and international rules and hegemonism.

So far, the impact of the U.S. trade bullying has been felt across the world, damaging the multilateral trading system, disrupting global industrial chains and supply chains, undermining market confidence, and posing a serious challenge to global economic recovery and a major threat to the trend of economic globalization.

China's Position

In response to the economic and trade friction started by the U.S., China has been forced to take countermeasures, as bilateral trade and investment relations took a hit. For the well-being of the Chinese and American people and the economic development of the two countries, both sides deemed it necessary to come to the negotiating table to seek a solution through consultation. Eleven rounds of economic and trade consultations have been held, with the two sides agreeing on most parts of the deal. But the consultations have not been free of setbacks, each of them being the result of the U.S. breaching consensus and commitments and coercing China into compromising on issues of principle, which no independent sovereign country would accept.

China always maintains that cooperation serves the interests of the two countries, that conflict can only hurt both, and that cooperation is the only correct choice for both sides. China does not want a trade war, but it is not afraid of one and it will fight one if necessary. China welcomes efforts to continue negotiations but will not back down on major issues of principle. As a responsible member of the international community and in the interests of both peoples, China is committed to credible consultations with the U.S. based on mutual respect, equality, mutual benefit and good faith. It is hoped that the U.S. can pull in the same direction with China and manage economic and trade differences, strengthen trade and economic cooperation, and jointly advance China-U.S. relations based on coordination, cooperation and stability for the well-being of both nations and the world.