A corporation-led China-US truce to benefit all

Unveiling her 2024 strategy, US Treasury Secretary Janet Yellen said America didn’t seek to “decouple” from China because it would be “damaging” to both economies with negative global repercussions, stressing that the two economies had an obligation to drive collective action for the benefit of the people and global economies.

Washington appears to realise that an improved economic relationship with Beijing is important for its economy, job market and businesses. It was mirrored in Yellen’s speech that the acknowledged US exports to China, Chinese investments and key inputs from Beijing could generate employment and strengthen America’s competitiveness internationally.

Trajectory of the vital relationship is gearing toward rapprochement but the US allegations on China of deploying unfair economic practices while maintaining tariffs and export and investment controls on Chinese products and companies pose a persistent threat to make such a joint effort.

Per US data, duties assessed on China products have exceeded more than $198 billion. These tariffs, including on goods of no strategic value for US national security, have hit the consumer pockets and hammered competitiveness of the exporters relying on China for intermediate inputs as bipartisan bets such as the House Select Committee on China strategy to win economic competition with Beijing put Washington’s mission to manage the relationship in peril.

Proposals like moving Beijing to a new tariff column as outlined in the report would essentially revoke Beijing’s permanent normal trade relations (PNTR) status and drastically raise tariffs on Chinese products, suggesting President Joe Biden’s effort to build a floor under the China-US relationship is facing strong challenges from China hawks.

Tariff increases have inflicted sizable negative impacts on the US economy and job market. An Oxford Economics report in November identified America had reaped “substantial benefits” from enhanced trade with China since it gained PNTR status. Stating a sixfold tariff increase on China since 2018 had reduced US jobs and output, it warned tariff hikes could cost America up to 744,000 jobs by 2025 and trigger $1.6 trillion loss in GDP over a 5-year horizon.

While this policy could have immediate catastrophic inflationary impacts on consumers, potentially undoing the US economy’s “soft landing” and in part is based on a false premise that China’s economic system is “incompatible” with the WTO, it also undermine administration’s goal to lower production costs and create even more jobs, putting US businesses at disadvantage to their global peers.

Due to devastating effects of some of its recommendations, CATO Institute warns it may constitute violations by the US of its own WTO treaty obligations. The US Chamber of Commerce welcomed several recommendations, denouncing China’s policies, but described the repeal of Beijing’s PNTR status as a “blunt instrument” over its potential to “heap” high costs on Americans without radically altering the supply chains.

In his meeting with Biden, Chinese President Xi Jinping emphasised on working together to overwhelm global economic and security riptides. Where this rare engagement sent a reassuring signal to America’s business leaders about cooperation, it exasperated the Select Committee’s chairman Mike Gallaghar who sought a complete list of individuals and companies that bought tickets to dine with Xi and paid $40,000 to sit at his table.

China is still a lucrative market for many of them. Recent import and supply chain expos in China, which pulled scores of companies from the US and Europe, underscored this trend. A 32% surge in new foreign-invested companies across China in the first 10 months, per China’s commerce ministry, shows China hasn’t lost that much appeal as a foreign investment destination as portrayed. The Select Committee’s green-eyed view, however, could derail the sporadic sign of truce and spoil the moment for the US businesses.

Capital flight from China has made quite a few headlines. Beijing’s first-ever quarterly foreign investment deficit, dubbed as a success of the West’s “de-risking” strategy, may be partly right yet ignores the other angle of the spectrum. The Chinese auto manufacturers, for instance, are quietly relocating their operations to Mexico. While this capital outflow is helping them to challenge American and European rivals by capturing their market share, it could allow them to circumvent 27.5% tariffs as well as take advantage of the US-Mexico trade agreement and burgeoning Mexican exports to America.

Speculations about China’s economic downfall are exaggerated too. Although leading international financial watchdogs such as IMF and ADP have slashed their 2024 growth projections for China, economists don’t see the Chinese economy in trouble or “dire straits”. Even at 4.6% growth rate, Beijing is poised to comfortably leapfrog the major developed economies.

Over the last year or so, top executives of several US conglomerates such as Tesla, Starbucks and JPMorgan have visited China. These trips as well as the US major arm supplier Raytheon’s Greg Hayes’ declaration China “is too big, too important and too necessary to the US economy” and Tim Cook’s characterisation of Apple’s relationship with Beijing as “symbiotic” reveal American firms’ craving for the big Chinese market.

With some of the CEOs of these blue-chip companies wooing Xi in San Francisco, like it or not, Biden will have to work with Beijing. And any truce in the trade war between China and the US, regardless where it comes from, should be welcomed for it would benefit the international economy, people, countries such as Pakistan that needs both China and the US to trounce its strategic and economic roadblocks as well as prevent further economic fragmentation and bring more stability to the world.

Published in The Express Tribune, January 12^th, 2024.

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