U.S.-China Imbalance Needs Global Context, Beijing Vice Mayor Says

The search for solutions to the trade imbalance between China and the U.S. should be viewed under the broader backdrop of the global supply chain, said Yin Yong, vice mayor of Beijing and a former deputy governor of the People’s Bank of China.

“When we talk about the trade conflict, we only focus on the trade figures. But this is not a panorama,” Yin said at a conference Friday in Washington jointly hosted by Caixin Media and U.S. think-tank Peterson Institute for International Economics.

“Besides the U.S. and China, there is the rest of the world. If we look at that picture, we will find something different,” Yi said to a group of economists and executives who had gathered to discuss global economic perspective and China.

In the long supply chain amid globalization, the U.S. is at the very end of the stream as an end-user, with China beside it, meaning a significant part of the surplus is created by the upper stream of the supply chain.

Yin was appointed vice mayor of Beijing in January, following his tenure as a deputy governor of the central bank since December 2016.

“If we look at the trade deficit in terms of goods and services together, China takes only 37% of the share of the U.S. trade deficit and the rest of the world takes 63%,” he said.

The current supply chain is chosen by the market and any artificial adjustments through a trade war will cost both the U.S. and China, Yi said, suggesting that the countries should work together to fix the imbalance by increasing Chinese imports while loosening U.S. export controls.

“A trade war is a lose-lose game for both the U.S. and China,” Yin said.

If the U.S. can loosen export controls and treat China as it does France, its trade deficit with China could shrink 34%, Yin said, citing a study by the Carnegie Endowment for International Peace.

For China, a more mature and open service sector will help it balance its trade with the U.S. Currently, China’s service sector accounts for about 52% of the national GDP, far less than the up to 80% share of some developed economies, Yi said.

While China holds a huge surplus with the U.S. in terms of the trade of goods, the U.S. has more competitiveness in service trade, he said.

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Contact reporter Han Wei (weihan@caixin.com)