preface
Since the reform and opening up in 1978, China's economic construction has made significant progress.
Especially after joining the World Trade Organization in 2001, the economic growth rate significantly increased, becoming the fastest growing economy in the world. The living standards and urbanization level of the people are also constantly improving.
This series of high economic growth is considered a "Chinese miracle" by the outside world, and has also helped China overcome poverty and backwardness, becoming the world's second largest economy.
The most important factors for China's economic growth are investment, exports, and consumption.
Among them, the export industry dominated by foreign trade plays a crucial role in China's economic development.
At present, its contribution rate to national economic growth exceeds 22%, and the number of employees relying on its production and living has exceeded 180 million.
In China's foreign trade, the United States is the largest trading partner. In 2022, the trade volume between China and the United States will reach 690 billion US dollars, equivalent to one tenth of China's total foreign trade that year.
But recently, the US House of Representatives passed an incredible resolution with a vote ratio of 415-0.
Recognize China as a 'developed country', thereby canceling the 'permanent normal trade relationship' enjoyed by China in trade with the United States.
This is undoubtedly a sudden blow to China US economic and trade cooperation.
So, what impact will this resolution of the United States have?
1. Changes in US Economic Policy towards China
Firstly, let's take a look at what "permanent normal trade relations" are.
The so-called permanent normal business relationship is actually an extension of the "most favorable clause".
Generally speaking, if one country (contracting party) grants the most favored nation clause to another country, then the other country is called the "most favored nation".
When the beneficiary country conducts trade, customs, and navigation activities within the territory of the contracting party, it will enjoy the same preferential treatment, exceptions, and even equal treatment as citizens of the contracting party.
For the receiving country, this means that its goods can flow more smoothly within the territory of the contracting country, and trade with the contracting country becomes more profitable.
Since the end of World War II, the United States has been the country with the strongest consumption in the world.
The North American market created by the United States, Canada, and Mexico is also the world's largest consumer market. Many developing countries hope to import their products into the US market for profit.
However, during the Cold War, the United States excluded socialist countries from the trading system and only granted most favored nation treatment to European countries and Japan, which were part of the same camp.
In the 1970s, the United States established diplomatic relations with China and reached an agreement to grant China the most favored nation treatment.
Since 1980, Sino US trade has been continuously developing.
However, due to the time sensitivity of most favored nation treatment, the status of recipient countries is subject to annual review by the United States Congress and remains unstable.
So, after difficult negotiations, the US Congress passed a resolution in 2000 granting China "permanent normal trade relations", which was signed and confirmed by then President Clinton the following year.
After reaching a permanent normal trade relations agreement, China no longer needs to undergo annual inspections as before, but can use this qualification almost permanently without a validity period.
Chinese goods are also more convenient to enter the United States. China's coastal export trade, mainly focused on labor-intensive industries, has also gained development opportunities, greatly stimulating employment and economic development.
In foreign trade with the United States, China mainly imports agricultural products, mid to high end machinery, automobiles and components, high-tech products, and exports mainly steel, assembled mechanical and electrical products, textiles, daily necessities, etc.
The production cost of Chinese products is relatively low, and with the support of national treatment, a large number of "Made in China" products quickly appeared in the US market. Trading activities earn US dollars, providing China with the world's largest US dollar foreign exchange reserves and enhancing its ability to withstand economic risks.
Not only did it receive normal treatment in US trade relations, but it also received a commitment from the US to support China's accession to the World Trade Organization (China joined the World Trade Organization the following year).
Indirectly opening up trade terms with other WTO members for China, allowing Chinese goods to circulate worldwide.
It can be said that the decision of the United States to provide China with permanent normal trade relations has indeed brought huge economic benefits to China.
The United States also took the opportunity to transfer a large number of low-end industries, allowing ordinary people to enjoy high-quality Chinese goods at low prices.
This decision was also in line with the global strategic layout of the United States at that time.
After all, the strategic focus of the United States at that time was on Europe and the Middle East. Its main strategic opponents are Russia and various religious extremist organizations. China is his target for acquisition and cooperation.
However, since the 1910s, China's economic strength has improved and surpassed Japan, becoming the world's second largest economy. His military strength and international political influence are also increasing day by day.
Especially in recent years, with the shift of the US strategic focus towards the Asia Pacific region, disputes between China and the US over issues such as the Taiwan Strait and the South China Sea have become increasingly acute.
'Containing China' has become an established strategy of the United States. The United States has become an inevitable choice for the United States to suppress China economically and restrict economic cooperation with China.
Therefore, abolishing the "permanent normal trade relations" enjoyed by China has become an important means for the United States to promote economic separation between China and the United States.
And China's promotion to "developed country" is an excuse for the United States to revoke China's most favored nation status.
After the relevant resolutions come into effect, China's foreign trade exports to the United States will be negatively affected, and both export volume and foreign exchange income may show a downward trend.
The decline in trade volume between China and the United States in the second quarter of 2023, as well as the decline in US investment and imports to China, also confirms the negative impact of US crackdown activities on the Chinese economy. China.
In fact, while promoting economic separation from China, the United States seeks to cede its huge market share to Canada, Mexico, and Southeast Asian countries.
As of 2019, Mexico and Canada have become the first and second largest trading partners of the United States for consecutive years, and China's importance in the US foreign trade system is decreasing.
In addition, it should be noted that the United States' suppression of the economy is not only reflected in foreign trade, but also affects multiple fields such as semiconductor exports, technology transfer, and investment.
China must be prepared for long-term foreign trade challenges.
2. How does China respond to this challenge?
The best choice for China to overcome the suppression from the United States is to continue expanding its market and find a better consumption environment for Chinese goods.
In terms of foreign trade, China's foreign trade exports cannot stop due to the suppression of the United States.
Finding markets outside the United States and reaching free trade agreements with them to reduce barriers to the circulation of Chinese goods is an inevitable choice.
In addition to the North American market dominated by the United States, the main consumer markets in the world today also include the European market, Southeast Asian market, and Latin American market. China can fully transfer its share of exports to the United States to these cities.
Among them, the retail size of consumer goods in the European market, including non EU countries such as the UK and Switzerland, will approach $8 trillion by 2022, which is not much different from the US market ($8.12 trillion).
The number of consumers in the European market also exceeds 550 million, with huge consumption potential.
And European countries, especially the European Union, are also unwilling to harm their economic interests in order to follow the United States. The EU has long been China's top three foreign trade partners.
China reached a free trade agreement with the European Union as early as 1992, and in recent years, it has also signed free trade agreements with two non EU countries, Switzerland and Iceland.
In short, the opening up of the European market is very beneficial for China's breakthrough in foreign trade.
Although Latin American countries have lower purchasing power and development levels than North America, Europe, and East Asia, they also have over 540 million consumers, with a total retail sales of consumer goods exceeding 2.2 trillion yuan.
It also possesses agricultural products and mineral resources that are highly needed for China's economic development. Expanding trade cooperation with Latin American countries and exporting high-quality and affordable Chinese goods to Latin American countries is also a good choice.
At present, China has signed free trade agreements with four regional countries: Chile, Costa Rica, Ecuador, and Peru, resulting in a significant reduction in trade tariffs.
In the future, it is necessary to reach free trade agreements with multiple Latin American countries.
The Southeast Asian market is also a direction worth paying attention to.
Southeast Asian countries are basically ASEAN member states. Although their total consumer market is only 1.3 trillion US dollars, their demand and economic growth are relatively fast.
In addition, it also includes over 670 million consumers, most of whom are young consumers under the age of 40.
Singapore, a Southeast Asian country, is also an important source of foreign investment for China. It has deep connections with emerging markets in Southeast Asia and has had a huge positive impact on China.
China reached a free trade agreement with ASEAN in 2002, and the largest source of imports for most ASEAN countries is China. ASEAN has long maintained its position as China's largest trading partner.
The economic and trade cooperation between China and ASEAN will undoubtedly deepen in the future.
In addition, China has also reached a free trade agreement with South Korea, and in the future, China may also explore new markets such as the Middle East and Africa.
China itself is also the second largest consumer market after North America, which can meet the needs of some foreign trade enterprises.
By opening up multilateral trade channels, China's foreign trade will gain more opportunities. China still has a high possibility of defeating the United States' unilateral hegemony through multilateral trade.
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