Trade friction between the world’s two largest economies could undermine stable global growth. Both countries are urged to act with awareness of their responsibility.
The United States and China have held a ministerial-level economic dialogue in Washington. They discussed ways to reduce the United States’ trade deficit with China, but the talks ended in disagreement with no outcome.
The United States’ trade deficit with China is US$347 billion, accounting for nearly half of its total deficits. The figure is more than five times larger than its second-biggest deficit, with Japan.
In the dialogue, the United States pressed China to correct its excess steel production and ease regulations on foreign investment. China offered almost no answer. The gap between the two sides was so wide that a post-talks press conference was cancelled shortly after the dialogue began.
During their meeting in April, US President Donald Trump and his Chinese counterpart Xi Jinping agreed to devise a “100-day action plan” aimed at correcting the trade imbalance between the two countries.
This could be viewed as a way to procrastinate and prevent trade friction from coming to the fore during the 100-day period. Now that the dialogue, which marked the end of this period, has fallen apart, the two sides have lost a way to deter confrontation.
The friction could develop into a tit-for-tat situation if the Trump administration, which is scrambling to recover manufacturing employment levels, adopts hard-line policies such as limiting US imports of Chinese products.
Trump has publicly said that he is considering restricting U.S. imports of steel products on the grounds of national security. This measure could violate World Trade Organisation rules.
The possibility also cannot be ruled out that not only China but also Japan and other economies would become subject to import limits.
The European Union has already warned that it could invoke a countermeasure against US goods if Washington imposes import restrictions on steel from Europe.
If tit-for-tat sanctions become widespread, the current trade system in which economies are mutually dependent through the supply of parts and other operations could fall into disarray and have a serious adverse impact on the global economy.
The United States has successively sought to review the North American Free Trade Agreement and its bilateral free trade deal with South Korea. However, it has been pointed out that the government is not functioning well, with delays in appointing senior officials to departments and agencies.
The United States should first secure the footing of its own government. It should focus on the reform of industrial structures that links the sound development of free trade to its own growth without resorting to protectionist measures.
China’s responsibility is also critical.
The country’s steel production accounts for half the world’s total output. China is only halfway through eliminating the excessive production facilities and equipment because it has, for example, preserved the “zombie companies” that are effectively bankrupt. This has distorted the global steel
Streamlining unprofitable state-owned companies. Turning the current export-dependent economy into one driven by domestic demand. Steadily carrying out such reforms will also pave the way to promoting global free trade.