Economists call for a sensible framework to tackle US-China trade war

Professor Raymond: China and the United States must adhere to the sense of cooperation and scientific spirit, and avoid going to extremes

This article is a reprint of this WeChat post: https://mp.weixin.qq.com/s/uFUIM1Ri5K_x0EntjR6p6A

by Raymond Peking University Institute of National Development. Translation by WeChat.

Inscription: On the morning of October 27, 2019, the National Development Research Institute of Peking University and Shanghai New York University jointly held a forum with the theme of “Sino-US Economic and Trade Relations – Seeking a New Way Out”. The forum also released a joint proposal signed by 37 internationally influential economic and trade experts and legal experts including five Nobel laureates in economics. This article is based on one of the three core sponsors of the proposal, the Executive Vice President of Shanghai New York University, and the 11th President of Cornell University, Professor Jeffrey S. Lehman. Not confirmed by the speaker himself.

This summer, Professor Yao Yang, Professor Dani Rodrik and I found that everyone has a common concern: the escalating trade friction between China and the United States will cause damage to both peoples. We are also very worried about the fact that since China has not moved closer to the Western market economy system, China and the United States can only decouple each other.

We all believe that there must be a coordinated solution between the two extremes of convergence and decoupling, a compromise that we can find through careful communication and academic analysis.

Therefore, in July of this year, the three of us convened a working group of 10 people, and then joined a series of very well-known international economic and trade and legal experts, and everyone worked together to finally promote this "Joint Initiative."

We first met at New York University in early August and wrote this joint initiative in September. After that, we sent the initiative to some very famous professors and scholars all over the world, including 27 experts in the fields of economy, international trade, law, etc. Many of them are very supportive of our 10-person working group and are willing to Sign on the Initiative. In the end, 37 people including the working group signed a joint proposal, including five Nobel laureates in economics and three chief economists at the World Bank.

I am a law professor and also involved in civil coordination between China and the United States. I have participated in two visits to Capitol Hill organized by the American Chamber of Commerce in Shanghai. During this year's visit, I found that the parliamentarians are concerned about seven important issues in Sino-US economic and trade relations, including state-owned enterprises, technology subsidies, financial market access, intellectual property rights, compulsory technology transfer, industrial policies, and exchange rate reform. The seven problems discussed at the time were also considered to be whether China and the United States could converge or whether some key indicators needed to be decoupled. In particular, the market related to China is not distorted. How to change distortions, especially state-owned enterprises and subsidies, is the most worrying.

In my opinion, the real problem is not that the United States is worried that the spillover effects of China's industrial policies will hurt US companies or employment, nor that China's industrial policies will lead to overcapacity, interfere with markets and enterprises in other countries, and thus constitute Unfair competition on a global scale.The question that really worried me was that some people in the United States strongly protested and even suggested directly: If China cannot restrain itself and even cancel industrial policies and reduce the size and capacity of state-owned enterprises, then the only thing the United States can do is to “decouple” from China. Raise tariffs to protect the local market.

It is precisely realized that such a trend of thought is not conducive to the two sides really sit down to solve the problem, we decided to set up a working group and propose a compromise.

The key to this compromise is the framework of the “four baskets”. The connotation is that China retains the autonomy of industrial policies and allows the United States to protect itself against the possible impact of China's industrial policies. Therefore, China should try not to promote industrial policies in a fully competitive field, and the United States should try to protect itself without high tariffs, because high tariffs will hurt other countries and also hurt China’s full market competition. Export.

Therefore, we must take the peaceful coexistence as the starting point and base on science. If China’s subsidies to state-owned enterprises interfere with global economic and trade, the United States must specify which state-owned enterprises, which types of subsidies, and then clearly stated in the “second basket” of the Joint Initiative. If the situation is true, China must Take measures to reduce related subsidies. If the coordination fails, it will refer to the "third basket". The United States itself can also adopt policies to weaken the impact of China's state-owned enterprise subsidies on the United States, instead of simply punishing China through tariffs, and then causing China's counter-measure. The biggest difference between this and the trade war is that it can ensure that both countries take coexistence as a starting point and continue the trade between the two sides in the field of goods and services. As economist David Ricardo proposed two hundred years ago, consumers, workers and producers in both countries can gain a win-win situation in trade through comparative advantage, rather than simply going to confrontation, and ultimately lose both.

There are several possible issues with this Joint Initiative, and I will answer two of them here.

First, does this program mean giving up the principles of the WTO? Does it mean that some of the principles proposed by the WTO to coordinate the friction between the two countries will no longer be adopted?

My answer is: First of all, in my opinion, the trade war between China and the United States itself has already left the WTO framework. The future way is that the two countries will gradually return to the WTO framework, or change the traditional WTO through new coordination. frame. The economic and trade relations between the two countries are far more than trade, but more yuan and deeper cooperation. Secondly, the anti-dumping policies and countervailing duties we mentioned are not in contradiction with the WTO principles, and are also in line with China's commitments when it joined the WTO.

Second, is this program biased against China and hurts the United States? Because China can continue to adopt its own industrial policy, and its industrial policy often supports state-owned enterprises.

My answer is no. For us Americans, the real concern is not whether China has supported the development of the country through subsidies from state-owned enterprises. This is China's development model. What we really want to pay attention to is whether the subsidy policy of state-owned enterprises will cause overcapacity of competitive products, especially whether the production capacity is dumped to the United States or the whole world, which will directly harm the interests of the United States and other countries. In my opinion, China and the United States must jointly care about the parts of the real conflict and work together to resolve them. If there is indeed capacity dumping, China will cancel or restrain its own state-owned enterprise subsidies. Otherwise, the US government has reason to implement a series of anti-dumping policies to minimize the harm caused by Chinese state-owned enterprises' subsidies and dumping, thereby protecting the interests of the American people. At the same time, it will not let the relationship between the two sides go unhooked because of the increasing friction. Therefore, I believe that the Joint Initiative is fair and equitable for both China and the United States, and the support and signature of many American economists and jurists also illustrate this point.

Of course, what we are proposing is not the final plan in Sino-US trade coordination, but a framework. I hope that both China and the United States can follow this path and let the people of both countries accept such a solution.

Through the exchanges between the two academic circles, we are convinced that healthy and equal competition is our common value. It can benefit the people of the world and achieve fairness and equality in all aspects of resource allocation. This framework is not only helpful for resolving Sino-US economic and trade relations, but also has reference value for many cooperations around the world. Just like today's forums and conferences, we see that teachers and students from China and the United States work together and learn together. The difference in culture does not affect our common pursuit. As long as we use coexistence as a starting point and science as the basis, For all human beings, China and the United States will find creative solutions.

The South China Morning Post also reported on this forum: https://www.scmp.com/business/china-business/article/3034746/joseph-stiglitz-and-other-nobel-winning-economists-call