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  • Don’t Expect Much from the Latest Grand Meeting with China

    The United States and the People’s Republic of China will hold the 2011 version of the Strategic and Economic Dialogue (S&ED) this coming Monday and Tuesday in Washington. Many distinguished people will participate, many well-crafted speeches will be given, many valuable topics will be discussed, and little of long-term economic value is likely to be achieved. Again.

    This is especially unfortunate because next year could be very difficult for Sino-American relations.

    By far the most important economic issue for America and China is the related imbalances in our economies. The U.S. recognized this several years ago and has repeatedly raised the matter. Result: Both economies are now more imbalanced than when the Dialogue began.

    The main reason is simple: Neither country wants to bear the pain of rebalancing. Instead, they take to telling the other side why it should rebalance. And break the currency peg. And sell advanced technology. And so on. Explaining to the other side what’s in its best interest never works, but it’s a lot easier than facing up to your own problems.

    The alternative approach is to tackle smaller, more manageable bilateral economic disagreements, and the U.S. seems to be moving in this direction. This is reasonable, but then it is not clear what purpose the S&ED serves.

    The U.S. established the Joint Commission on Commerce and Trade with China in 1983 to talk about exactly such matters. Financial and other senior officials now travel back and forth at will for further discussions, as they should.

    The bilateral relationship definitely needs cabinet-level exchanges and technical economic discussions, but 28 years of work along these lines certainly haven’t produced the breakthroughs some anticipated from the S&ED. What can the S&ED itself accomplish?

    America and China would do well to make substantial progress on one major economic issue, such as mutual investment access (rather than pretending to deal with 40 more). Unless the S&ED can produce a concrete improvement on a fundamental economic issue, it will continue to serve no substantive purpose.

    This has become a potentially dangerous failing. The 2012 U.S. presidential election is mirrored in the PRC by rotation of the top leadership of the Chinese government. Next year, politics could push both sides toward greater confrontation. Now is the time for significant progress, but the record to this point is not encouraging.

    Posted in International [slideshow_deploy]

    4 Responses to Don’t Expect Much from the Latest Grand Meeting with China

    1. Zhuubaajie, Hong Kon says:

      Everybody talks to the Chinese, who's like the Buddha – ask (nicely preferred) and you shall be answered.

      The Germans did. The French did. The Africans did. The Greeks did. ASEAN did. You don't see China acting ballistic against them. But if you start out on the wrong foot like the Japanese does – arrest the Chinese trawler, or like the Koreans – bring military threats directly to China's doors, WHAT do you expect?

      Yes, Mr. Scissors is correct – the biggest issue is mutual access to investment opportunities. So far it has been totally one-sided.

      By June, 2009, the total number of U.S. investment projects in China had exceeded 57,000 and the value of accumulated U.S. investment in China reached 61 billion dollars. These U.S. companies operating in China REPORT annual profits of at least 80 billion U.S. dollars. The actual profits are of course much higher, as they are hidden with transfer pricing moves. According to the American Chamber of Commerce in China's 2009 White Paper, about 74 percent of American businesses in China made profits and 91 percent chose to stay in China to expand their business. Many of these businesses are enjoying not only whatever industrial policies promulgated by Beijing, but they are also enjoying preferred status, advantaged over the locals.

      On the other hand, cumulated Chinese direct investments in the U.S., due to the hostility shown by the American Congress, has been only US$3.1 Billion by June 2009. The $80 Billion in American profits from China is MANY TIMES that of the profits on China's exports to America ($300 Billion, with profits averaging 1-5%).

      Protectionism will just jeopardize Americans' ability to make profits from China. It will also kill the fastest growing export market (China) for American exporters.

    2. lokesh roy says:

      well one should not push things too far. enjoy profit but do not forget the other side.us should give a thought to this and listen to the chinese point of view. after all it is a matter of give and take. it needs a pragmatic friendly approach if globalism is to be truly honored……. all narrow approach from both sides to be shunned to arrive at a happy end to the long standing imbalance

    3. Leon Lundquist, Dura says:

      Derek Scissors, I love your work. Too bad but we are very unlikely to get any advantages from anything Obama negotiates with any Foreign Interest. Universal Pandering is 'leading from behind' and that's the actual Obama Doctrine! "Give away the whole country!" So, does that mean we should expect a Combined Currency? "The Dollar-Yaong!" That way China can steal as much as it wants from the United States and Donald Trump can't do anything about it! Just a thought.

      If we were smart we would make China the 53rd State! Might as well, for all the difference it makes, Comrade! We still don't know that we lost the Cold War! Nothing at all could surprise me. Yongadollars? Sure! Why not? Maybe then, some of that Chinese Free Enterprise might rub off on U.S. Chairman Mao is a favorite of the Obama crowd in the White House! If the House does not stop Obama soon? Nothing will be impossible (except American Liberty!)

    4. FutureofUSChinaTrade says:

      History is a judge, and serves as a great one in this case. Looking back at all of the economic dialogues and related discussions between the U.S. and China since 1996, it’s amazing to see how very similar policymakers’ talking points have been over the years. Even looking at some of the discussions when the U.S. normalized trade relations with China in 1979 — many of the same complaints, many of the same responses.

      Nevertheless, clear (and very significant) progress has been made. (Both China and the U.S. have, after all, yielded enormous benefits from our 32 years of economic relations.)

      Check out the history of the economic dialogues here: http://www.futureofuschinatrade.com/article/histo

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