In his September telephone conversation with US President Joe Biden, Chinese President Xi Jinping proposed cooperation between their countries on climate change, the Covid-19 pandemic and economic recovery. Biden should accept Xi’s offer, as it could be the answer to the US president’s prayers.
History will tell that cooperation brings prosperity while confrontation hurts both the US and China, but America more.
Benefits of cooperation
A relatively smooth trade relationship between China and the US had brought significant benefits to both nations. Being America’s factory and market, China brought economies of scale to US companies, increasing their competitiveness in the international marketplace. China buying large quantities of US products, from foodstuffs to advanced semiconductor chips, promoted and sustained American enterprises’ financial viability. This increased both US and Chinese economic and employment growth.
China benefited from US trade and investment, particularly in terms of technological advancement and management knowhow. The transfer of advanced technology and management methods from US companies to their Chinese joint-venture partners improved production efficiency.
It can thus be argued that the US had played an important role in China’s rapid economic ascendency, helping it become the world’s second-largest economy in nominal exchange-rate measurement and biggest in purchasing power parity terms in just 40 or so years.
But that close US-China relationship came to a halt during the Trump presidency. Fearing China’s rise would pose a national-security threat, Donald Trump declared a trade war, imposing tariffs on more than US$350 billion worth of Chinese goods. The excuses for the trade war were to reduce the US current-account deficit with the Asian giant and to bring US manufacturing back home.
Impact of confrontation
However, Trump’s policies backfired, harming the US more than China. The tariffs undermined economic growth because they increased US production costs and consumer prices. Even more ironic was that the tariffs actually increased the US trade deficit and reduced manufacturing activities.
According to the International Monetary Fund, China’s economy grew at 6.8%, 2.3%, 8.5% in 2019, 2020 and 2021 respectively. The growth figures for the US for the same period were respectively 2.1%, -3.5% and 6.4%. The pre-Trump era annual growth numbers were much higher, estimated at more than 8%.
Trump banning Chinese-made technology products from the US market and US firms from selling semiconductor chips to China did slow down the Asian country’s technological advancement. Barring US companies from selling advanced chips and chip-making equipment to China, for example, were responsible for Huawei losing $30 billion in revenues and hurt its smartphone business in 2020.
But the company survived and remained profitable, seeing profits increase by 6.5% in the same year, according to the company’s rotating chairman. This is because the company expanded its business scope, adding smart cars to its lines of business, for instance.
Furthermore, China became the biggest destination for direct foreign investment (FDI) in 2020, estimated at more than $142 billion. The China Global Television Network (CGTN) reported on October 1 that China received an astonishing $442 billion in FDI in the first six months of 2021. A big chunk of the FDI figure was originated from the US.
In short, China weathered the trade and technology wars well. Or at the very least, US businesses are not in sync with their government on the “China threat.”
Still, many pundits in the West jumped all over one another to say China was collapsing because of issues such as the Evergrande saga and electrical power shortages. Whether these “experts” are right or wrong, time will tell. But history is not on their side.
The case for US-China cooperation
It is clear that the US being “tough” on or creating conflicts against China is shooting itself on the foot. Biden should therefore seriously consider his Chinese counterpart’s offer of cooperation on climate change, the pandemic surge and economic recovery.
China could certainly help the US (and the world) in curbing the pandemic’s spread. Its lockdown measures might seem “draconian” to the US but they worked, giving the term “short-term pain for long-term gain” a whole new meaning.
China’s insistence that the virus’ origins should be determined by science and that countries or regions that had the coronavirus before it emerged in Wuhan be investigated is reasonable. Finding the origins would help countries prevent another pandemic.
Put another way, China has had ample experience and expertise in curbing the Covid-19 pandemic and other diseases. Accessing the Chinese experiences and information would go a long way to stopping this and future pandemics.
The same can be said for climate change. China is arguably the world’s biggest developer and producer of green energy equipment. With China’s help, Biden could more easily shift from fossil fuel to renewable energy. This would help the US president to meet his emission-reduction targets.
Resetting the US-China trade and investment relationship will be crucial if not essential for America’s economic recovery. China’s manufacturing comparative advantage made US firms efficient and competitive in the international marketplace. China’s huge market had absorbed huge quantities of US goods and services.
Ken Moak taught economic theory, public policy and globalization at university level for 33 years. He co-authored a book titled China’s Economic Rise and Its Global Impact in 2015. His second book, Developed Nations and the Economic Impact of Globalization, was published by Palgrave McMillan Springer.