US-China Economic Ties Need to be Strengthened More Than Ever
By Hong Bao

US-China Economic Ties Need to be Strengthened More Than Ever

Nov. 14, 2023  |     |  0 comments

An ancient Chinese proverb, "Harmony brings mutual benefits, while division leads to mutual harm,” aptly describes the current economic relationship between China and the United States. Since the onset of the US-China trade war in 2018, it has become increasingly apparent that severing these economic ties would be detrimental to the prosperity of both nations. A disrupted US-China economic relationship ignores the fundamental laws of economic development and has led both countries down an unpredictable path. The impact of COVID-19 has only intensified the consequences of a fractured US-China economic chain, a situation made more pressing by recent geopolitical upheavals. 

To prevent further deterioration, it’s important to acknowledge four key aspects underscoring the importance of Sino-American economic ties. First, we need to recognize that the economic cooperation between China and the US demonstrates strong mutual complementarity. China, by importing American technology and utilizing its manufacturing prowess, supplies the global market with high-quality, cost-effective goods. China's role in this process is irreplaceable, and any disruption to this relationship would have far-reaching repercussions. Notably, China holds substantial US dollar reserves, is a major purchaser of US Treasury bonds and represents the largest single market for American producers, including giants like Apple, Boeing, Tesla, and Microsoft. These factors clearly illustrate that severing these collaborations could result in inflationary pressures, elevate risks to US debt, and adversely affect American businesses.

Second, the world must recognize that China has been a key player in the globalization process initiated by the US. Since China’s entry into the World Trade Organization (WTO), there has been a significant surge in global trade, frequently reaching new heights. China has become an essential hub in the global trade network, facilitating market access and enhancing global production efficiency. Casting China as a disruptor in this network overlooks the facts and misrepresents the true situation. Attempts to "decouple" from China disrupt this network,  slowing global economic activities and increasing risks of inflation. According to the United Nations Conference on Trade and Development, global trade entered negative growth in the second half of 2022 and stagnated in the first half of 2023.

Figure 1. Merchandise exports (current US$) surged after China's accession to the WTO

Source: World Trade Organization

Third, the technology competition between China and the US is not a zero-sum game. The competition between China and the US in fields such as AI and quantum technology should not be misconstrued as a "winner-takes-all" scenario. Instead, it should be viewed as a constructive competition, where both countries bring unique strengths to the table. For example, while the US is often at the forefront of developing fundamental theoretical frameworks in these high-tech areas, China excels in innovative application. This collaboration promotes faster technological advancements and economic growth. Conversely, if the US treats this competition as a life-or-death struggle and imposes more suppression, it could compel China to adopt a more defensive strategy, potentially leading to an escalation in military tensions.

Fourth, we need to realize that changes in US-China Economic ties shake the bedrock of global stability. As the world's two largest economies, China and the US act as twin pillars supporting the global economic structure. Any disruption in their relationship will result in far-reaching consequences, impacting not just the economy but also the geopolitical landscape. This is most evidently demonstrated by the current geopolitical tensions. If rivalries overshadow collaborative development on a global scale, the fallout for such a vast system becomes unmanageable for any single nation, including the US. In this scenario, human civilization could once again be exposed to significant risks.

For now, the rational choice for all sides is to promptly find a new equilibrium in US-China economic cooperation. Direct economic and trade relations between China and the US ought to be strengthened rather than rerouted through intermediary countries. The primary focus should be on evenly distributing cooperation within existing industries, as this is the crux of the matter.

As global leaders, China and the US should collaborate in a way that is mutually beneficial and responsible, especially in emerging industries such as green energy and AI. To effectively address climate issues there's an urgent need to reduce the cost of green energy and relevant products. This endeavor requires China’s manufacturing capabilities and the US’s coordination skills. In such a critically important area for human survival, it's reasonable to expect more cooperation from the world's leading nations. In the field of AI, a fragmented approach could lead to uncontrolled technological development and application directions, resulting in harmful competition. Without close communication, a shared understanding, and joint regulations from these two major powers, the possibility of AI becoming a threat to humanity could become a near-term reality.

Now is an ideal time to tackle the challenges in Sino-American economic cooperation with enhanced coordination and a global perspective. Addressing these issues promptly can pave the way for a cooperative, prosperous future for the world.