There is only one truth in China-US trade

Note: The following is an edited translation of a commentary on the U.S.-initiated trade dispute from the Chinese-language "Commentaries on International Affairs (国际锐评)".

You might have noticed that the United States has repeatedly used "301 investigations" as a cover for its trade attacks on China. On July 10, the U.S. Trade Representative released the findings of its investigations, accusing China of illegal conduct and of taking advantage of the United States. 

On Thursday, China's Ministry of Commerce responded to these accusations, refuting American claims of unbalanced trade, Intellectual Property Rights theft, forced technology transfers, and the Made in China 2025 policy. The ministry said the United States distorted facts and responded to the accusations with hard facts so the international community can judge the situation for itself. 

A man waits for the goods to be load on his tricycle at a dealer selling imported seafoods at the Jingshen seafood market in Beijing, Thursday, July 12, 2018. [Photo: AP/Andy Wong]

In its reply, the Commerce Ministry pointed out that the trade deficit between China and the United States is a result of America's low domestic savings rate, the role of the dollar as an international reserve currency, and American restrictions on exports of its high-tech products. 

It is a fact of life in the United States that people spend their future earnings by financing consumption with credit, which is why households have low domestic savings. In the first three-quarters of 2017, the net savings rate in the United States was almost at a global low point, reaching a high of just 2.2 percent. To meet the American people's need to spend and the country's need to develop, it buys relatively cheap import and attracts foreign investment by running current account and trade deficits. So the American trade deficit is a result of its economic structure, rather than unbalanced bilateral trade with China. 

Yale University Senior Fellow Stephen Roach warns "Without addressing the shortfall in domestic saving, the bilateral fix simply moves the deficit from one economy to others. Therein lies the cruelest twist of all. China is America's low-cost provider of imported consumer goods. The Trump deal would shift the Chinese piece of America's multilateral imbalance to higher-cost imports from elsewhere – the functional equivalent of a tax hike on American families."

Currently, over 65 percent of the world's foreign reserves are in U.S. dollars. More than 80 currencies base their exchange rate on U.S. dollars, and nearly 80 percent of transactions on foreign exchange markets are made in U.S. dollars. This gives the United States financial supremacy, because it can print dollars and issue dollar bonds in exchange for products and resources from other countries. If the United States wants their dollar to remain the leading global currency, they will inevitably maintain a trade deficit. 

Trade in the high tech sector accounts for almost 40 percent of America's trade deficit with China. If the United States lifts its restrictions on tech exports, it will provide a near instant reduction in this trade deficit. The question is: Can the United States abandon its Cold War mentality and scrap these restrictions?

When it comes to the accusation by the United States that China is stealing intellectual property rights, this allegation doesn't stand up to close scrutiny. China has established comprehensive protections of intellectual property that covers areas including copyrights, trademarks, patents, and commercial secrets. Courts have been set up in Beijing, Shanghai, and Guangzhou specifically to deal with intellectual property rights cases. And more and more foreign enterprises have been coming to China to have these cases heard. Last year, the courts ordered three shoe manufacturers in China to pay 10 million yuan (1.5 million U.S. dollars) to New Balance for trademark infringements, the largest sum a foreign company has ever been granted in compensation in China in a case of this kind.

At the same time, China's payment of external intellectual property fees increased by 17% annually since 2001, reaching US$28.6 billion in 2017. The World Intellectual Property Organization recently announced that China has submitted 51,000 patent applications through the Patent Cooperation Treaty, second only to the United States. And China is now more eager than ever to see foreign governments strengthen their protection of China's intellectual property rights.

On the issue of the so-called "forced technology transfers", there are no laws in China that mandate transfers of intellectual property for technology from foreign companies to their domestic partners in China. In the past 40 years, China has never signed any agreements on forced technology transfer, and "technology transfer" has never been a condition for foreign investment. 

Contracts are the essence of the market economy. Technology transfers between enterprises are based on voluntary exchanges. Many foreign companies, including American ones, localize general technology and collect patent and technology transfer fees from cooperative enterprises in exchange for access to the market in China. Recently, former U.S. Treasury Secretary Larry Summers said in an interview with American media that the leading position of some companies in China is not the result of them stealing American technology; rather, it is the result of outstanding entrepreneurs who have benefited from huge government investments in basic science and from an education system that promotes excellence and focuses on science and technology.

Finally, when it comes to American accusations against China's industrial policies, including "Made in China 2025", many insightful people have noted that the purpose of the U.S. Section 301 investigation is to suppress China's new high-tech manufacturing industry and inhibit China's development. The United States has an "advanced manufacturing partnership program" and Germany has its "Industry 4.0" policy. Why can't China have its own manufacturing development plan?

Looking specifically at the question of industrial subsidies, the United States government provides land subsidies, tariff reductions, loans, industrial facilities, and research and development support. It is difficult to see how Silicon Valley could be as innovative and prosperous as it is today without government assistance. 

"Made in China 2025" is a market-oriented, open, and inclusive development plan. Yes, the government is playing a leading role. But the government has stressed repeatedly that "Made in China 2025" treats domestic and foreign companies equally and invites foreign companies to participate in the construction and development of China's manufacturing industry. Enterprises from United States, Germany, and United Kingdom among others are already taking part. 

It is clear that the United States is adopting a double standard to curb the development of China's advanced manufacturing industry. This hegemonic behavior reflects the inability of the White House to solve the structural problems in the United States, and its desire to foist this responsibility onto others. It also reflects the Trump administration's deep uneasiness about China's development, which it is trying to nip in the bud.