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Sunday, 13 October 2019

US-China trade frictions imperil global industrial chain

The trade frictions provoked by the United States against China are a threat to all, even as Egypt-China economic and trade cooperation continues to enjoy a bright future, writes Han Bing

Han Bing, Wednesday 18 Sep 2019
US trade frictions imperil all
Han Bing
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Since March 2018, in the name of reducing its trade deficit with China, the US has taken measures including raising tariffs and restricting investment that have been provoking economic and trade frictions against China. In the last several months, the US has been trying to act against China on many fake pretexts, some of which have been blackening and insulting.

The pretext of the US “losing” because of the trade deficit with China directly equates its trade deficit with “losing,” which accords with neither the facts nor the common sense of economics.

First of all, there is a huge gap in the trade statistics between the two sides. The deficit figure on the US side is $100 billion larger than on the Chinese side. Secondly, the US and China have different economic structures. The US economy is dominated by the services sector, and the surplus gained by the US from the trade in services with China is nearly $90 billion. Thirdly, the US has imposed strict high-technology export controls on China. If these restrictions could be relaxed to the same level as those on France, its deficit could be cut by 35 per cent.

Fourthly, the US dollar is one of the most-used currencies for international trade and one of the world’s primary reserve currencies, and in order to play this role it inevitably requires a US trade deficit with most of its partners. Finally, the trade surplus and real benefits are two different concepts. In fact, in the value chain of goods transiting between China and the US, though the trade surplus belongs to China, most of the benefits go to the US.

China only gains a few processing fees, while the US obtains huge profits from its designs, royalties, key components and marketing, etc. For example, only one per cent of the sale price of Apple smartphones in the US market is generated in China, but the whole value of the phone is included in China’s exports to the US.

The pretext of China’s “forcing” technology transfers is groundless too. The US has yet to cite even one example proving any policy or practice introduced by the Chinese government that has forced foreign-investor enterprises to transfer technology. Technological cooperation between Chinese and foreign enterprises is entirely voluntary and based on business interests without any enforcement. China’s technological achievements result from its huge investment in basic scientific research, outstanding entrepreneurs and science and technology-oriented education system.

Since 2000, total R&D (research and development) spending in China has kept increasing by nearly 20 per cent annually to a record RMB1.76 trillion in 2017, ranking second in the world. China possesses some 4.18 million R&D personnel, ranking first in the world. In 2018, China’s patent applications and those patents granted both ranked first in the world. The Chinese company Huawei possessed 34 per cent of all the patent applications essential for 5G mobile phone standards by the end of March 2019, compared with only 14 per cent from all US companies.

The pretext of China’s “stealing” intellectual property rights (IPR) ignores the fact that China has made great progress in protecting IPR, and the only aim of this pretext from the US is to justify its measures of provoking trade frictions and suppressing China. In 2018, China became the fourth-largest importer of patents, and payments for foreign IPR fees rose to $35.8 billion compared to $1.9 billion when China first joined the World Trade Organisation (WTO) in 2001.

China is first in IPR case trials, especially in patent cases. China is not a thief of IPR, but a protector. The fact that Apple and Qualcomm chose China to settle their dispute on patent-licensing fees shows the world’s recognition of China’s jurisdiction in this field. Among the major challenges faced by members of the American Chamber of Commerce (AmChamber) in China, IPR infringement has dropped to twelfth place in 2018 from fifth place in 2011, according to its recent survey.

Remarks that “China has repeatedly backtracked in trade negotiations” are complete nonsense. In February 2018, China and the US began consultations, but the US announced a tax increase on Chinese goods worth $50 billion on 22 March. On 19 May, the two sides issued a joint statement, but the US announced that it was continuing to raise taxes on $200 billion worth of Chinese goods on 29 May.

On 1 December, both countries agreed to continue their consultations, but the US announced another tariff rise on 10 May this year. It is thus clear who has really repeatedly backtracked and reneged on its commitments in bilateral economic and trade negotiations. Over the past year and earlier, China has been pushing forward the consultations with the utmost sincerity, hoping to reach a mutually beneficial agreement on the basis of equality and mutual respect. China will never compromise on major principles concerning China’s core interests.

Provoking trade frictions against China by the US is a typical practice of protectionism, unilateralism and bullying, disregarding WTO rules. Such behaviour hurts both others and itself, seriously disrupting the global industrial chain. A joint report by the US Chamber of Commerce and the Rhodium Group in March 2019 showed that, under the impact of China-US economic and trade frictions, US GDP in 2019 and over the next four years could decrease by $64-91 billion per year.

In the first four months of 2019, bilateral trade between China and the US fell 15.7 per cent year-on-year. China’s exports to the US declined for five consecutive months. The US has seen eight consecutive months of declines in exporting to China, but the trade imbalance between the two countries has not changed significantly. Trade tension is one of the main reasons that the World Bank lowered its forecast for global economic growth to 2.9 per cent in January 2019 and the IMF cut its forecast to 3.3 per cent from 3.6 per cent in April.

No challenge will hold back China’s development. China’s economy is resilient when facing risks and challenges. In the first half of 2019, China’s economy grew by 6.3 per cent, characterised by consumption contributing 60.1 per cent and the service sector contributing 60.3 per cent to such growth.

The US started to crackdown on Chinese high-tech companies this year, including by putting Huawei onto its “Entity List” in May, but this failed to stop Huawei’s pace. Huawei has succeeded in launching AI chips, 5G mobile phones and other world-leading products, especially the recently released Harmony operating system for the Internet of Things, which has been researched and developed for more than seven years with functions to connect mobile phones, computers, electronic wearable devices, cars and other devices and is also compatible with the Android system. If needed, the Harmony system will be able to substitute for Android soon.

After being put on the “Entity List,” Huawei’s production and supply chain kept operating well, and the company has signed more than 50 5G contracts outside China, providing two-thirds of 5G communication equipment among the countries that realise the importance of 5G’s commercial use globally. Huawei’s revenue grew at 23 per cent in the first half of 2019. It spent $70 billion buying components and parts in 2018, $11 billion of which went to US-based companies. Banning exports to Huawei by the US administration will hit heavily these US high-tech companies

External interference will not jeopardise the bright prospects of China-Egypt economic and trade cooperation. As comprehensive strategic partners, China and Egypt’s cooperation has witnessed fruitful achievements in recent years under the guidance of the two countries’ heads of state. Trade volumes reached a record $13.8 billion in 2018. China’s actual investment in Egypt exceeded $7 billion, creating more than 30,000 local jobs. China-Egypt cooperation in major projects such as transportation, energy and the construction of the New Administrative Capital has reached $5 billion.

Financial cooperation has also yielded remarkable results. Chinese financial institutions have injected about $7 billion into Egypt. Every year, nearly 1,000 Egyptians participate in Chinese government training and scholarship programmes, and about 500,000 Chinese tourists visited Egypt in 2018. Regarding Egypt as a gateway to Africa, Huawei has been implementing a variety of capacity-building projects, including the Seeds for the Future Programme, the Huawei ICT Academy and the Huawei Talent Bank Project, in Egypt.

The bullying acts of the US against China might cause some troubles for China-Egypt cooperation, in particular as a result of the US government’s unreasonably pressuring many countries to reject Huawei’s technology and equipment. However, China-Egypt cooperation enjoys solid foundations and huge potential. In the framework of the “One Belt One Road” (BRI) Initiative, we will go on to share broader prospects. Chinese companies, which believe in sharing and growing with partners, usually set much lower profit margins than US companies, and the profit margin of Huawei was only 8.7 per cent in the first half of 2019, for example.

China’s technology and expertise will keep contributing to Egypt’s development, and the cooperation between the two countries will clear away any obstacles and continue to benefit the welfare of their two peoples.

 

*The writer is minister counsellor for economic & commercial affairs at the Embassy of the People’s Republic of China in Egypt.

**A version of this article appears in print in the 19 September, 2019 edition of Al-Ahram Weekly. under the title: US trade frictions imperil all

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