3. Understanding the Recent Sino-U.S. Trade Conflict

To understand Sino-U.S. trade relations and the trade imbalance, this article interprets the trade imbalance between China and the United States from the Trump administration’s perspective. It analyses the development of the Sino-U.S. trade conflict by examining Sino-U.S. trade data. The Trump administration claims that the Chinese government’s subsidies for exporters and high import tariffs are the main causes of the Sino-U.S. trade deficit, resulting in the loss of nearly three million jobs in the U.S. manufacturing industry. The Trump administration therefore argues that limiting Chinese exports to the United States by imposing high tariffs can resolve the trade deficit, keeping China in the middle and low end of the global value chain. The article finds that U.S. statistical accounting of the trade volume between the two countries ignores important features of re-exports and overestimates the size of the trade deficit. Reducing China’s imports cannot directly increase U.S. employment, and China’s exports provide the United States with low-price and high-quality products. Chinese investors tend to invest the trade surplus in the United States by purchasing U.S. Treasury bonds, benefiting the U.S. economy. China’s large trade surplus mainly comes from labor-intensive products, while in capital-intensive products the surplus in value-added is small. In addition, China’s tariff policies are in line with the World Trade Organization’s rules, and the United States also limits Chinese investments due to “national security” concerns. China’s upgrading to the middle and high end of the global value chain is an inevitable consequence of economic development. Therefore, China and the United States should increase the size of bilateral trade and rebalance Sino-U.S. trade toward a sustainable direction by seeking economic and trade cooperation via trade negotiations.