The verdict of Judge Gregory W. Carman of the United States Court of International Trade in New York on Thursday, March 28, 2007, is forceful. China’s case for duty-free exporting of high-gloss paper has been denied and the imposition of a duty promptly followed. Duties on other Chinese exports may soon follow. Let not the process lead to a trade war between China and the United States of America.The case for a fair and even playground for free trade between the USA, the largest economy of the world with 300 million people, and China, the fastest growing economy of the world with 1.3 billion people, is a subject of debate. The case for “dumping” warrants a critical scrutiny. Is China’s socialist market economy finally open for effective scrutiny ? As a member of the World Trade Organization (WTO), China is now open to international dialogue. A formal complaint by the USA against China with the WTO is not expected to yield an optimum result.. A trade war between the two economies which will directly impact on the lives of 1.6 billion people will also compromise economic welfare of the remaining 4.4 billion people of the world. The U.S.-China trade war can and must be avoided. An economic hot line between the two will be most welcome.
Following the signing of the now-famous Shanghai Communiqué in 1972, China aggressively followed the new economic policy of internationalization and industrialization. “To be rich is glorious”, proclaimed China. China invited foreign direct investment with 100 percent foreign ownership and the inflow of hundreds of billions of dollars from the mature industrialized economies to China became a fact. Given the huge population base and consequent abundance of labor supply, skilled as well as unskilled, at a relatively low wage rate, China became a much attractive economy for highly profitable investment. China’s endowment of natural resources became an additional inducement for foreign investors. With the progress of industrialization, the people of China was expected to become consumers of imports from the rest of the world. A ten percent increase of such demand in China meant 130 million new consumers, a marketing dream.
China offered to the rest of the world its socialist market economy, knowingly different from a capitalist market economy. Foreign investors encouraged themselves to ignore the potential risk. Profits were waiting to be made and risks to be taken. Profit was made from investments in China and the repatriation of profit home became a strategic decision. To earn an export revenue pool in convertible currencies from exporting some of the new manufactures in China to the rest of the world became the first step. From that pool, repatriation of profits home and further addition to investments in China became a win-win situation. The economic game plan was transparent to both sides.
China adopted a private ownership law only in March of this year. China is allowing the revaluation of its currency at a pace managed and regulated by the Peoples’ Bank of China (PBOC), just as most capitalist free market economies manage their respective monetary policies.
Vis-à-vis China, the USA, the richest economy of the world, has relative advantage in abundance of its aggregate stock of physical capital embodied with super-high technology. The USA can and must effectively compete with China. With an innovative machine, an American worker will be able to manufacture high-gloss paper of much higher quality in much larger quantities per labor-hour.
The American economic policy must be directed to that end. Supply-side tax-cut policy has failed. Could we channel corporate income tax-cuts directly to such investments in the American industries in America? An economic plan to enrich America’s human capital, based on education, health care and environmental protection must also be in order.
A trade war with China will hurt American corporations with billions of dollars of investment in China, minimizing their profit for repatriation home. The tax revenue they pay to U.S. Treasury will be far less, adding more pressure to our budget deficits and the. national debt now at a peak of US 10 trillion. The duties imposed on the Chinese exports will be passed on to American consumers, exposing them to an inflationary pressure. The real income of the middle class who buy most of those goods will be adversely impacted.
Let us take note of the fact that China owns huge amounts of US bonds. An escalation of the bilateral trade war between China and the USA will prompt China to liquidate the US bonds and opt for an alternative international reserve currency. As of April 2007, the euro has already reached the critical mark of $ 1.3455. Given China’s foreign exchange reserve at US$1.1 trillion, China can sustain its rate of growth at an accelerated rate for years to come. China’s economic relations with the European Union, Russia, Western Asia, Africa and Latin America, and within the continent of Asia are in phenomenal progress.. China is a leading member of the now-famous 4 plus 10 model of Asian Economy with the Asian money .
An invitation to China to participate at the G-8 summit meetings will be a multilateral forum for resourceful deliberation and reconciliation. China warrants an invitation to the Group.
