Why China-US trade conflicts won’t end in war – no matter how loud the threats

Patrick Mendis and Sheng Cui say with China-US economic and investment relations strengthening by the day, points of disagreement could well be resolved by finding more ways to cooperate for mutual benefit, notwithstanding the warnings of tariffs and other punitive measures

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Commerce-friendly China has consistently shown the willingness and openness to build a sustainable trade and investment relationship with the US. Illustration: Craig Stephens

Published: 1:35pm, 15 Sep 2017Updated: 7:13pm, 15 Sep 2017

August was a noisy month for both Washington and Beijing. The Trump White House opened an investigation into China’s intellectual property policies. Meanwhile, the Chinese government launched an anti-dumping probe into some rubber imports from the US and several other countries. With the scent of a “trade war” in the air, have Sino-American economic ties arrived at a turning point? The situation looks less bleak from the macroeconomic perspective.

China and the US are connected by trade, investment and people-to-people exchanges. From the meeting in Florida between US President Donald Trump and his Chinese counterpart Xi Jinping, it appeared the two leaders have something in common. Like Trump, Xi has consolidated his “decisive role” on economic and national security.

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In January this year, then president-elect Trump invited Alibaba Group Executive Chairman Jack Ma to Trump Tower for a meeting. Despite his China-bashing rhetoric, Trump lavished praise on Ma, calling him a “great, great entrepreneur and one of the best in the world”. In that meeting, Ma offered to help create one million American jobs by bridging US small businesses and Chinese consumers through Alibaba’s e-commerce platform.

The strategy of Alibaba – owner of the South China Morning Post – is only the tip of the iceberg in China’s engagement with the US in trade and investment. In the past decade, Chinese foreign direct investment to the US has increased rapidly. By the end of the second quarter of this year, for instance, Chinese FDI in the US reached a total value of nearly US$135 billion. It was 111 per cent higher than the total figure in 2015, even though the pace of Chinese growth has been slowing. Currently, Chinese investments can be found across 46 states in the US, mainly focusing on real estate, hospitality, information technology and renewable energy.

Chinese FDI in the US reached a total value of nearly US$135 billion by the end of the second quarter this year. Photo: Reuters

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Over the past three decades, China has also been one of the most important FDI destinations for the US. In the past quarter of a century, there has been over 6,700 individual FDI transactions from the US to China, with a total value of US$228 billion. By 2015, 29 out of 31 provinces and regions in mainland China were recipients of American FDI. Shanghai, Beijing and Jiangsu took the lead.