China and the US are the world’s largest economies and positive relations between these two countries are key for global stability, development, and prosperity. However, Sino-US ties are currently beset by escalating trade tensions.

The current trade deadlock has attracted significant attention from around the world and raised key questions. What are the causes of this situation, and what has propelled the Trump administration to persist in its tariff attacks towards China? How should China respond? These issues have prompted much discussion.

There is a need for Chinese and US think tanks to deepen their research and analysis to find empirically-grounded ways of understanding the trade dispute, as well as strengthening channels for bilateral dialogue to forge consensus on how to resolve the trade war.

Against this backdrop, this report by the Center for China and Globalization (CCG) aims to present a systematic assessment of the various dimensions of the Sino-US economic dispute. It covers factors that caused the tensions, drivers of US policy, the future trajectory of the dispute, as well as recommendations on ways to overcome the deadlock.

The report finds that the current Sino-US trade imbalance is 1) caused by deep underlying structural factors; 2) significantly overestimated by conventional measurements; and 3) cannot be resolved by erecting trade barriers.

The Chinese and US economies are deeply intertwined, so using traditional metrics leads to a severe misreading of the true bilateral economic relationship. Given that, moving forward, economic relations between the two countries are destined to be characterized by both cooperation and competition, it is in the interest of both sides to find ways to expand and deepen cooperation.

The trade war is not a zero-sum game. It will hurt not only both economies but likely also the rest of the world. There are many voices in that oppose the trade war, including in both US houses of Congress. There is also an uptick in opposition in the US more generally, and international opposition against this form of protectionism. This increases the likelihood of reopening dialogue.

China and the US are the world’s largest economies and positive relations between these two countries are key for global stability, development, and prosperity.

However, Sino-US ties are currently beset by escalating trade tensions. The current trade deadlock has attracted significant attention from around the world and raised key questions. What are the causes of this situation, and what has propelled the Trump administration to persist in its tariff attacks towards China? How should China respond? These issues have prompted much discussion.

Against this backdrop, this report by the Center for China and Globalization (CCG) presents a comprehensive and systematic analysis of the Sino-US economic dispute. It covers the underlying drivers behind US government’s trade policies towards China, and examines the possible trajectory of the dispute. The following conclusions are drawn:

The current Sino-US trade imbalance is caused by deep underlying structural factors and is significantly overestimated by conventional measurements. American efforts to redress the imbalance via unilaterally imposing tariffs against China are not sensible. The Chinese and US economies are deeply intertwined so using traditional metrics leads to a severe miscalculation of the true bilateral economic relationship. Given that economic relations between the two countries will be characterized by both cooperation and competition, it is in the interest of both sides to find ways to expand and deepen cooperation.

The trade war is not a zero-sum game. It will hurt not only both economies but likely also the rest of the world.

There are many voices within the Washington circles against the trade war as well as an uptick in US domestic opposition towards it. This increases the likelihood of reopening dialogue.

Based on these conclusions, the report argues that it is possible to find solutions to defuse the trade war and puts forward the following series of recommendations.

1.Both China and the US are facing a series of structural challenges. Both countries need to accelerate the restructuring of their own economies, building on the foundation of domestic reforms to bring about a joint improvement in the trade imbalance.

2. The way that Sino-US trade is measured should be reformed and updated, particularly to account for global value chains. This will more accurately and fairly quantify the value of the trade relationship for both countries.

3.China and the US should work to expand bilateral trade in services, including tourism, education, exchange of talent, investment migration, infrastructure construction, and e-commerce.

4.All parties should work to restore and strengthen the role of economic ties as a ballast in the bilateral relationship. This entails working through American multinationals, trade associations, think tanks and lobby groups to help overcome the current deadlock on bilateral communication, and bring about a return to the track of dialogue and negotiations.

5. Strengthen Sino-US cooperation at the state/municipal level in fields such as infrastructure, emerging industries, climate change, and energy. Encourage local governments to deepen engagement and collaboration with states and municipalities in the US, including via annual Sino-US summits at both the gubernatorial and mayoral level. In addition, create new platforms for cooperation at the local level and province-to-state cooperation for infrastructure funding.

6.Appeals and consultation should be carried out under the WTO framework. China could file appeals against the US and undertake negotiations under the WTO, providing a space for productive discussion.

7.The US could relax export restrictions, in particular concerning high-tech exports to China. This would be mutually beneficial, helping to reduce the negative impacts of such export restrictions and reduce the trade deficit.

8.Revive talks towards the Bilateral Investment Treaty (BIT) or explore a new Sino-US Free Trade Agreement (FTA) to reduce barriers to investment on both sides and further open up markets. The BIT can serve as an important foundation to ensure stable future economic relations between China and the US.

9. Promote free trade via facilitating regional multilateral institutions and mechanisms for the Asia-Pacific region and accelerating the formation of a regional free trade system. In the future, China could consider joining the new Trans-Pacific Partnership (TPP).

10. Both sides should work to strengthen the role of Track II diplomacy in facilitating bilateral exchange. Supporting exchanges among think tanks and nonprofit organizations across the Pacific will create effective bridges for dialogue, help to dispel miscommunication, and generate positive plans to resolve differences.