This weekend will mark the 50th anniversary of a milestone in China-US relations. The Shanghai Communique was signed by the two nations on February 27, 1972. It was the fruit of then-President Richard Nixon’s efforts to thaw the frosty relationship between the United States and the communist nation. The agreement specifically identified the normalization of commercial ties as one of its objectives. Since then, trade between the United States and China has grown rapidly, but the United States buys far more from China than vice versa.
Many economists like Chad Bown, a senior fellow at the Peterson Institute for International Economics in Washington, DC, don’t see this imbalance as a problem. But it troubled President Donald Trump when he was in office, so he imposed a set of tariffs and other restrictions on Chinese exports to the United States.
Trump “basically looked at any country that the United States had a bilateral trade deficit with, meaning we were importing more than we were exporting to them, and China was No. 1 on that list,” said Trump. Bown said. “It was something that [Trump] wanted its trade war, ultimately, to fix itself.
After nearly four years of trade tensions, the record on both sides seems mixed.
To understand how China has become a manufacturing power since Nixon’s historic visit in 1972, the unlikely lingerie capital of Guanyun County in the eastern province of Jiangsu may offer a clue.
I visited the Midnight Charm factory in the spring of 2018, just before the trade tensions started.
Dozens of women in front of sewing machines produced scores of Playboy Bunny outfits, catsuits and lace dresses. Almost half was destined for the American market.
Unbeknownst to the workers, they were partly fueling the US-China trade dispute.
Seamstress Chen Xinwei, for example, called an eight-hour shift a “short” workday, since her colleagues usually worked 10.
The starting salary for a local seamstress was $5,500 a year.
The Chinese work longer hours than Americans and for lower wages. This is partly why lingerie and other products made in China are so cheap for American consumers. A massive labor pool, efficient industrial clusters, and support from the Chinese government are some of the other factors that have built China’s unparalleled manufacturing prowess.
While Trump’s trade war began with his deficit aversion, the legal vindication was a Section 301 investigation that found US companies were subject to unfair Chinese trade practices, intellectual property theft and corruption. forced technology transfer.
Chinese officials deny these allegations. If such incidents occurred, China said, it was not at a systemic level.
As punishment, Trump imposed rounds of tariffs on Chinese goods, including nuts and bolts made by Jinan Star Fastener.
“For the extra 25% tariff on our products, our large US customers absorb most of the extra cost, while we pay the rest,” said sales manager Zhang Yuhua.
Ultimately, Americans are paying most of Trump’s tariffs.
At the height of the dispute, the United States imposed additional tariffs on two-thirds, or more than $300 billion, of Chinese imports.
China retaliated by imposing tariffs on almost 60% of American products.
“China kind of saw that it was actually an expensive exercise for them, [that] tariffs shoot you in the foot and impose costs on you,” Bown said. The country has imposed tariffs “very selectively”.
China has never imposed tariffs on products it needs for economic development, such as aircraft and semiconductors.
The tit for tat finally stopped in January 2020, when the two parties signed what is known as the phase one trade agreement. In it, the Trump administration said China had pledged to buy an additional $200 billion in US exports in 2020 and 2021.
It was a “problematic” and possibly “unrealistic” provision, according to Chad Bown, who had been monitoring the progress of the trade deal. He said this required China to first resume trade with the United States at the same level as before the trade tensions, which would have taken time to rebuild trade ties severed during 18 months of tariffs before that China cannot buy more US exports.
Ultimately, Bown found, China failed to fulfill its purchase commitment.
“China didn’t actually buy any of that extra $200 billion of US exports,” he said.
Chinese officials said they tried but were hampered by the COVID-19 pandemic.
“I think it really wasn’t that bad. At least on the agricultural side, China has purchased a record number of agricultural products,” said Henry Wang, president of the Center for China and Globalization, a Beijing think tank.
U.S. corn, wheat and pork exports increased, though Bown said it wasn’t entirely because of the phase one trade deal.
In addition to its purchase commitments, the Chinese government has promised some structural reforms, and progress has been made in some areas.
According to Matthew Margulies, senior vice president of China operations for the US-China Business Council in Beijing, China has improved market access for meat, dairy and pet food.
He said China has also removed equity caps and issued licenses for majority-owned or wholly foreign-owned companies in a number of financial services sub-sectors.
However, one area Margulies said China has not eased restrictions on is the Type A lead underwriting license.
“[It] is a technical license for banks or financial institutions that wish to participate in China’s interbank bond market and underwrite these bonds individually as a wholly foreign-owned enterprise instead of doing so through a joint venture,” said Margulies.
China could do more, but was discouraged, according to Wang.
“China hasn’t had many encouraging signs to make new efforts to [fulfill its obligations under Phase One] because we keep seeing [the] The US is sanctioning China,” Wang said, referring to the US government putting Chinese entities on lists that prevent them from buying certain US technologies.
The action also harms companies that are not directly targeted.
“Whether or not a company is actually at risk of being on this list, many Chinese companies feel that working with an American company is a political risk,” Margulies said. “Just by virtue of this perception, [it] has had a competitive impact on American businesses [in China].”
No further trade talks appear to be scheduled between the world’s two largest economies.
“It will probably take five to ten years for a new balance to be reached, for a new mutual acceptance,” Wang said.
Today, most tariffs, whether from China or the United States, remain in place.
“There is no sense that we are at a stage in US-China relations, where the US economy is doing better today than it was before the trade war,” Bown said.
Back at the lingerie factory, founder Lei Congrui said the pandemic has made his business more dependent on the United States because American e-commerce is more developed.
“90% of our products are exported. The United States is our biggest market, with 70% of exports,” he said.
This figure is much higher than in 2018, when the trade war started.
Additional research by Charles Zhang.