US President-elect Donald Trump launched attacks against China on Twitter Sunday, accusing Beijing of currency manipulation and flexing its might in the South China Sea. It was also reported that Trump would name former Goldman Sachs banker Steven Mnuchin as treasury secretary and investor Wilbur Ross as commerce secretary. This news aroused worries that the US under the leadership of Trump may take a tougher economic stance toward China.
During the presidential election campaign, Trump described China as the culprit for US economic difficulties, and accused China of relying on unfair trade to take away a large number of jobs from the US. According to statistics, the 2015 US trade deficit with China was about $340 billion. On October 22, Trump gave a speech in Gettysburg, Pennsylvania. He announced that he would implement his America First policy and reverse the difficult situation of the US in foreign trade relations. China is becoming the primary target under this policy.
After the Trump administration assumes office, the US may mount attacks on China in several aspects. The US Treasury Department is expected to submit a semiannual currency report to Congress in April next year, during which the US is likely to accuse China of manipulating its currency. If the Trump administration labeled China as a currency manipulator, it would have good reason to impose high tariffs on Chinese exports.
Meanwhile, the Trump administration may initiate more cases against China in the World Trade Organization, calling for high anti-dumping duties on Chinese steel products. In the first eight months of this year, the US raised 18 anti-dumping investigations involving China. The Obama administration has made it clear that it does not recognize China's market economy status.
In addition, the Trump administration might choose to further tighten the government's foreign investment review, setting stricter rules for Chinese investment. In mid-November, the US-China Economic and Security Review Commission released its report to the US Congress, expressing more concerns about Chinese investment's influence on US national security, and recommended that Congress should modify its law for preventing Chinese state-owned companies from controlling American enterprises.
However, if Trump launched a trade war with China, both sides would suffer. According to the recent report issued by the Peterson Institute for International Economics, if the US set off an all-out trade war against China and Mexico, the US unemployment rate would increase from the present 4.9 percent to 8.7 percent by 2020 and the US economy will slip into recession.
What's more, the Trump administration has no ground to accuse China of being a currency manipulator. David Dollar, a senior fellow of the John L. Thornton China Center of the Brookings, said that accusing China of manipulating exchange rates is an old way of thinking. From 2005 to 2015, the yuan has appreciated in value against the US dollar by about 25 percent. In recent years, under huge devaluation pressure, the People's Bank of China continued to intervene in market, trying to keep the yuan strong.
The Trump administration should adopt a more sensible and constructive attitude when dealing with economic and trade relations with China. Trump has pledged to spur $1 trillion in infrastructure construction over 10 years. But he also promised to reduce personal and corporate income tax rates. The administration must determine how to balance tax cuts and the huge sums demanded for infrastructure. In fact, China can give support to the US infrastructure construction plan and Chinese companies can play a more active role in the US.
The Trump administration should hold a more open attitude for Chinese companies' investment in the US. The Rhodium Group's statistics show that Chinese direct investment in the US is expected to reach a record high of $30 billion in 2016. By 2020, Chinese foreign direct investment is expected to reach $250 billion.
Chinese enterprises are showing more interest in investing in the US. Making better use of Chinese investment and promoting bilateral investment agreements as soon as possible are in line with the interests of China and the US.
(The author is a research fellow at the Charhar Institute and an adjunct fellow at the Chongyang Institute for Financial Studies at Renmin University of China. email@example.com Follow us on Twitter @GTopinion)