Deflecting Sino-US Trade Friction

The leaders of China and the United States met at Mar-a-Lago in the US state of Florida in April，agreeing to undertake a 100-day review of bilateral trade issues in a bid to head off heightened trade friction. Since President Donald Trump took office in January，US economic and trade policies have been taking a new tack. As China has the largest trade surplus with the US，pressure on Beijing for an adjustment of its trade policy has been increasing.  China and the US need long-term vision to help manage their important relationship. Policy adjustments are needed to find a new balance in the economic and trade equation.

Since China began its reform and opening policies nearly four decades ago，its economic ties to the US have become ever more interconnected. Sino-US trade and investment has accelerated significantly since China's accession to the World Trade Organization in 2001.

China is the largest source of US imports and the third largest export destination for US goods. In 2016，total trade between China and the United States reached US$578.59 billion. US imports from China stood at US$462.81 billion and US exports to China were US$115.78 billion，leaving China with a trade surplus of US$347.04 billion.

Sino-US investment links are also increasingly close，with investment funds moving in both directions. US direct investment in China increased from a mere US$32,600 in 1986 to US$3.83 billion in 2015. China's outbound direct investment has grown rapidly since the implementation of a "go global" strategy in 2001，and direct investment in the US reached an accumulated US$5.1 billion in 2015.

Economic and trade ties have promoted economic development of the two countries. Production efficiency has improved and consumers can enjoy more inexpensive and high quality goods and services. For China in particular，trade liberalization has promoted technological progress and economic growth.

Policy Adjustments

Following the US subprime crisis and the European debt crisis，the global economy has undergone significant changes. There are vast differences in the relative strength of the US and Chinese economies as well as industrial competitiveness compared with a decade ago. Imbalances related to this crucial economic relationship have gradually accumulated. For the consideration of internal and external factors，foreign economic and trade policies of both sides are facing adjustments which will pose substantial challenges.

The designation "Made in China" is by now accepted as a symbol of a relatively high segment in the global manufacturing chain. But China still faces internal and external pressures，most notably the need to upgrade its technology. First，from the point of view of product added value，China's competitive advantage in exporting high-tech products is still in need of improvement. In some industries，China is still at the low end of the value chain.  US restrictions on its exports of certain high-tech products to China have had an effect in holding back impact this upgrading and have exacerbated the bilateral trade imbalance.

Developed countries still view China as a "pollution paradise," where the environmental costs of production -- at least to the polluter -- are relatively low. The environmental costs remain in China while much of the production is shipped abroad to consumers in developed countries. But as production costs in China climb and environmental protection sentiment increases，the traditional advantages of Chinese products have gradually disappeared. At the same time，China is facing increasing pressure from trade friction. It is a frequent target of anti-dumping and countervailing duty trade actions. China's over-reliance on manufacturing has also inhibited the development of its trade in services. All of these pressures show that the existing foreign trade model is no longer suitable to China's development needs.

For the US，trade is good for the overall welfare of the country. However，with the relative decline of US political and economic strength and the gains by emerging market countries such as China，the US has become increasingly negative in its view towards unfettered global trade. On one hand，there have been significant benefits from global trade for low-income American consumers who depend on less costly imported goods. Trade has also been good for multinationals，exporters of services and high-tech producers. But there is no denying that there has been a sharp contraction of manufacturing employment，partly due to globalization. While some studies suggest that technological changes account for as much as 80% of the US manufacturing job losses，US officials still insists that China and Mexico have taken employment opportunities away from American manufacturing workers.

In the months since Trump took office，US economic and trade policies have undergone major changes. Under the banner of "America First," the Trump administration has proposed greater support for domestic industry. Candidate Trump proposed lower corporate taxes and a "border adjustment tax" to make domestic production more attractive. More radical ideas were also floated，including the imposition of a 35% tariff on imports from Mexico，the renegotiation of the North American Free Trade Agreement，withdrawal from the Trans Pacific Partnership accord，and even walking away from the World Trade Organization. After his election，President Trump surrounded himself with protectionist advisers，making good on his promise to pull out of the TPP agreement and pledging to renegotiate the North American Free Trade Agreement. In April 2017，Trump offered up two guiding principles of a "national reconstruction,' namely the purchase of US goods and the hiring of Americans. The goal is to coordinate trade policy and immigration policy to enhance the competitiveness of US companies and provide jobs for American workers. Specific initiatives include strengthening the US government's reliance on purchasing domestic goods and adjusting the visa policies. The US Trade Representative stated that the "America First" trade policy will ensure that US workers are able to compete in a fair environment.

The Trump administration insists it wants to enhance the interests of all Americans through the reshaping of trade and immigration policies. This requires policies that seek to keep US companies in the US，create employment in the domestic market and pay tax to the US government. At the same time，through the return of manufacturing to the United States，the administration seeks to provide more employment opportunities to the young people in the United States，and to promote the US economic prosperity. In February 2017，the Government Accountability Office reported that US government procurement covered by the WTO government procurement accord reached US$837 billion in 2010 and this was open to foreign companies. But the total of government purchases from the next five largest government procurement contracting parties was only US$381 billion. The US is looking to revise its trade agreements and adjust the part of the WTO government procurement agreement that it sees as detrimental to its interests.

Key Areas of Friction

Major sources of Sino-US friction are appearing across a broad front. For Washington，China's big trade surplus with the US is a major problem. According to US statistics，the total US trade deficit in 2016 was US$735.5 billion，while the US trade deficit with China，as mentioned earlier，reached US$347.04 billion. That makes China the primary source of America's trade deficit.

While the US complains about lost employment opportunities it also maintains that China has not fully lived up to its promises so that it can be granted "market economy" status. Washington points to continued government intervention in the foreign exchange market，the use of industrial policy to shape economic relations，excessive government subsidies，weak intellectual property protection，and policy support for state-owned enterprises as reasons for opposing recognition of China as a truly market economy. It maintains that these actions have affected fair competition between China and the US. The US hopes that China will create fairer competition for US companies by strengthening the nation's efforts to enhance the development of a solid market economy and implement more stringent policies to comply with WTO rules. In 2016，the US China Economic and Security Review Commission submitted a report to Congress focusing on China's state-owned enterprises，excess industrial capacity and the iss