The Root Actually Lies in the Relations between Capital and Labor

——An Exclusive Interview with Dr．Tu Xinquan，Professor and Vice Dean of WTO Research Institute，University of International Business and Economics

On January 21， President Hu Jintao concluded his state visit to the US. And the international communities had closely watched this visit， commenting that it was a successful visit， which bore substantial fruit and is of great significance for the future trend of Sino-US relations. In terms of the economic and trade ties， China and the United States agreed on $45 billion in US export deals to China and to give US companies’ greater access to China’s $88 billion-plus government contracts market.

Does this mean the conflict and dispute afflicted trade relations between China and US will be changed in the following years? What difficulties still lie ahead on the way of Sino-US cooperation? And can China’s huge trade surplus with US be gradually settled with the US’s growing export to China and Chinese companies’ increasing investment in the US? Concerning these issues the journalist of China’s Foreign Trade made an exclusive interview with Dr. Tu Xinquan， professor and Vice Dean of WTO Research Institute， University of International Business and Economics， who was an expert in studying Sino-US economic and trade relationship.

CFT: On January 21， President Hu Jintao concluded his state visit to the US. And the international communities commented that it was a successful visit， which bore substantial fruit and is of great significance for the future trend of Sino-US relations. In terms of the economic and trade field， how do you comment on President Hu’s visit? What do you think is the most significant meaning of this visit?

Dr. Tu: This visit in general was positive and the basic tone was cooperation. The most important meaning of this visit was to mitigate the tension in the past two years and lay foundation for the cooperation between China and the US in the coming years.

Obama visited China at the end of 2009， which actually did not have produced positive influence. And later the Cheonan Incident further worsened the relationship. Last year， the Sino-US relations were mostly confrontation， whether in the eyes of political circle， business communities or academia. However， this time governments of the two countries reached a tacit understanding. Chinese government lowered its posture to assure the US; and signed with the US substantial benefit， I mean， the big deals of US$45 billion; while the US valued President Hu very much with the highest standard state diplomatic etiquettes. Besides， Chinese Government also pledged to coordinate with the US on the North Korea issue. The two sides reached an agreement over cooperation， and reversed the trend of worsening relationship in the past year. And in the second half of 2011， the US Vice President Biden and China Vice President Xi Jinping would exchange visit， which actually aimed at fixing the orientation of Sino-US relationship in future.

Right now， neither China nor the US admitted the socalled G2， but as a matter of fact， this kind of situation was forming， well， in my personal opinion. In his State of Union address on January 25， Obama mentioned China for four times within one hour. What’s more， he admitted the competition between China and the US， but he also stressed that the US should work hard to strengthen itself instead of containing China. So seen from the State of Union address， the signal that the US Government conveyed was also very positive and cooperative， which further echoed President Hu’s Visit.

Cooperation will be the keynote of Sino-US relations in the coming several years from now on. Certainly China and the US will further the economic and trade cooperation in future. However， it doesn’t mean the trade disputes will be reduced or eased in the years to come.

CFT: In order to add job opportunities， Obama Ad-ministration proposed National Export Initiative (NEI)， placing expanding export as one priority of its work. On the contrary， China， in order to deal with the huge trade surplus， began to list increasing import in its 12th five year plan. In this view， Sino-US economic and trade cooperation had a foundation of mutual demand. Theoretically， it is true. But what would be the concrete integration point in reality? What are the major barriers?

Dr. Tu: Yes， it is true theoretically. But there are indeed some paradoxes. First， the US government proposed the NEI and set the goal of its export， but it didn’t issue the concrete implementing steps or measures. This made me doubt the effect of NEI. I met an American expert in this field a few days ago， and when we talked about this issue， he expressed the same questioning.

You know， there are two aspects to do in order to increase the export. One is to strengthen one’s own industrial competitiveness and the other is to open export market， which demands trade liberalization. The US government mentioned improving its strength and capturing the height of emerging industries. In opening the export market， the US needs trade liberalization， not only bilaterally but more multilaterally. However， the US government has been keeping a negative attitude over the Doha negotiation. And the TPP still did not have clear goals and progress. So I really question its NEI.

The second problem is that what the US will sell to China. You know， by now， Miscellaneous products( category 99)， according to the export and import goods classification， are still the category with the largest amount that the US sold to China. All kinds of scraps accounted for a large portion of this category. Besides the Miscellaneous products， mechanical equipment， particularly the electric equipment， and the agricultural products are what the US mainly sold to China. So the question is what else the US could export to China? For its export control， many products the US bears the comparative advantage over China could not be exported to China. Then what else? For the traditional manufactured products， the US does not have the comparative advantage obviously. So the US companies moved to China and manufactured goods， which then was exported back to the US. Even the high-tech ipods are also not produced in the US， but in China. So how does the US increase its export to China?

CFT: So just as you mentioned， the ipods are produced in China and then back to the US. Actually a large portion of China’s trade surplus were produced in this way， and the surplus creators are those large MNCs， including quite a few US MNCs. However， the US government always pressed China in trade issues taking China’s huge trade surplus with the US as the so-called “evidence”. So how do you comment on China’s trade surplus with the US?

Dr. Tu: You are right. China just bore a bad name of having huge trade surplus， but actually share a very small portion of benefit. Take the ipod as an example. Chinese companies only earn 5% of the added-value. There are complaints over this in China. I think there is nothing to complain. You still don’t have the capacity to take the 95% added-value， that’s your problem. And those MNCs chose to locate their production here for they thought the investment environment was good for them to invest. However， for the US side， they also should see the source of China’s trade surplus. It is not the problem between China and the US. The root actually lies in the relations between the capital and the labor. Capital’s nature of going after profit means that it would move to the place it can maximize the profitability. For the low labor cost and other factors， the US MNCs moved its production from its home to China. This kind of industrial transfer caused the unemployment in its home country， or the labor had to shift to the third industries. You know， in the US， the income of the employees in the average third industries is comparatively lower than in the second industries. So in either situation， the sense of happiness would be reduced in general. They thought it was Chinese who scrambled their jobs. So China’s huge surplus became one target for them to lodge their complaint. Actually， to solve this problem， China has nothing to help. Even though China’s huge surplus is reduced a lot， it does not necessarily mitigate the US’s unemployment. Their problems can only be addressed by themselves.