Comment: How decoupling between the United States and China became a self-fulfilling prophecy
Comment: How decoupling between the United States and China became a self-fulfilling prophecy

Comment: How decoupling between the United States and China became a self-fulfilling prophecy

DESPITE DISCONNECTION BOMS BUSINESS

Whatever these goals turn out to be, some feedback is already happening. As the US-China Business Council reports, both sides halted tariff escalations after the two countries signed the Phase One trade agreement in 2020.

In addition, China introduced a “robust system of tariff exemptions”, with the United States also introducing some exceptions.

This has contributed to a recovery in bilateral trade. By 2020, U.S. merchandise exports to China grew by about 18 percent, more than offsetting the tariff-driven decline of more than 11 percent in 2019. With that, China has maintained its position as the third-largest market for U.S. merchandise exports.

China has also maintained – or even deepened – its ties to the rest of the global economy.

As Nicholas R Lardy of the Peterson Institute for International Economics notes, “despite economic and financial tensions and a host of foreign restrictions on the transfer of technology to China,” the country continues to attract “record amounts” of foreign direct investment.

In fact, China’s incoming foreign direct investment in 2020 grew by more than 10 percent to $ 212 billion, putting its share of global foreign direct investment at a record high of a quarter, almost double that of 2019.

China’s leaders appear to be happy to continue on this path. In September, China’s central bank and financial regulators promised to optimize market access requirements for foreign banks and insurance companies, improve the rules on cross-border transactions between parent companies and subsidiaries, and expand foreign capital channels to participate in the domestic financial market.

China is also pursuing complementary domestic reforms aimed, for example, at achieving competitive neutrality. And it uses market mechanisms (such as exchange rate flexibility) to balance its trading account.

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