U.S., China should not fall into trade war: East West Bank CEO

2018-03-12 02:34:51 GMT2018-03-12 10:34:51(Beijing Time) Xinhua English

by Huang Heng

LOS ANGELES, March 11 (Xinhua) -- "It looks like PresidentDonald Trump has started to do something in order to live up toanother aggressive campaign promising to address trade imbalancesafter the tax reform has been done last year," Dominic Ng, Chairmanand CEO of East West Bank, said.

When talking about dispute between the United States and otherscountries on higher steel and aluminum import tariffs imposed byWashington Thursday, Ng pointed out the domestic political purposewas behind the decision, but the trade deficit problem could beoverstated by politicians and lead to a trade war with othercountries, including China.

"It's a strange phenomenon that the steel and aluminum tariffissue actually has very small impact to Chinese exporters sinceonly a measly two percent of total U.S. imports of steel products,by value, came from China in 2017," he said in a recent interviewwith Xinhua at the bank's headquarters in Pasadena City ofCalifornia. "But most people interviewed by local media in streetshowed they believed China will feel pain."

According to statics, Canada is the biggest supplier of steel tothe U.S.. In Asia, South Korea accounted for almost 10 percent ofall U.S. steel imports last year and Japan for nearly six percent.Meanwhile, the European Union cried so loud because it worries thatsteel that might've gone to the U.S. will now find its way toEurope, pressuring local steelmakers even further.

"So do you believe the tariff hike will rescue the six bigproducers left in the country?" Ng doubted, saying it will onlyresult in dispute in the World Trade Organization (WTO) foryears.

In the interview, Ng emphasized that even though public opinionin the United States has been turning against free trade, but theywould not like a trade war, not to speak of a ridiculous trade warbasing on wrong calculation.

"A trade war must have a internecine result," the banker said.His bank, with 36 billion U.S. dollars of assets, was listed by theForbes in January as one of the top five on the annual list ofAmerica's Best Banks 2018.

Ng called on U.S. media, economists and Trump's trade advisersto take their responsibilities to deliver a simple truth to thepresident and public that the current officially reportedU.S.-China trade numbers are grossly inaccurate because they arebased on outdated methods of data collection and calculation andhave not been properly updated to reflect today's globaleconomy.

"Currently, statistical agencies pin the entire trade value of aproduct to the last place it was exported from, even though theparts in the product come from many other countries. This method ofdata collection is based on the International Monetary Fund'sBalance of Payments Manual, which was first released in 1948, andnever appropriately overhauled to reflect the new complexities ofglobal value chains."

Ng then put his Apple iphone on the table and explained how theiPhone alone may add 17 billion U.S. dollars to the fault tradedeficit with China in 2016.

"One iPhone comes from different countries and regions, such asdisplays are manufactured in South Korea, processors come from theUnited States, touch ID sensors in Taiwan and barometric pressuresensors from Germany. Final assembly takes place in China," hesaid.

"Even though work in China is only a tiny fraction of the totalmanufacturing cost, the entire import cost of the iPhone isattributed to China in U.S. trade statistics."

"It's like a boy sending a box of pizza to your house, he tookyou 100 bucks, you can't say the boy earned you 100 bucks. He gotonly very small part from the business, the restaurant, market,farm, everyone are on the chain..."

He said, basing on traditional way, official trade statisticscompiled by the U.S. Bureau of Economic Analysis recorded a U.S.net trade deficit with China of 309 billion U.S. dollars in 2016,or 1.7 percent of U.S. gross domestic product (GDP), but if undervalue-added methods for tabulating trade created by theOrganization for Economic Co-operation and Development (OECD), thenumber will be much lower.

"While data for recent years is not available, if we assume astable ratio between traditional and value-added data, then theadjusted U.S. trade deficit in 2016 with China would come down from309 billion dollars to 169 billion dollars," Ng said, adding "it isa much more sensible and useful starting point for discussionsabout policies to reduce U.S. trade imbalances with China."

Ng's argument was supported by a study from Federal Reserve Bankof Dallas, which shows that using a value-added approach to measurebilateral trade reduces the U.S.-China trade imbalance by 33percent in 2013.

He also mentioned that public debate largely ignores the U.S.services trade surplus with China and track the negative impactsmuch more easier than the benefits since the economic globalizationis so complicated that it goes far beyond common American's basicknowledge.

"There's no question that trade integration with China has hadnegative impacts for specific demographics and regions in the U.S.,particularly for workers in low value-added manufacturing sectors.However, it is important to keep in mind that the trade deficitwith China has also yielded tangible benefits to the UnitedStates."

He listed the benefits of trade with China that are oftendifficult to measure and thus do not receive significant attention,including generating substantial savings for American consumers,hugely benefiting the U.S. from an environmental perspective, andmoreover, helping the United States to focus efforts toward highervalue-added activities.

"Better statistics would go a long way to help us overcome mythsand political gamesmanship, and instead identify and tackle thereal problems in the U.S.-China trade relationship," he said, whilerepeating that trade is just a part of economic cooperation betweenthe two counties.

The key to resolve the trade problem is not trade itself, Ngsaid, adding a comprehensive cooperation framework isnecessary.

"If the two countries work together, they can achieve a lot tothe world, from economic development to anti-terrorism operations,"he said.

"As long as both sides have the intention of creating a win-winsolution, respect the issues they are facing, and proactively andconstructively resolve them, this will push the U.S.-China traderelation to be more fair, balanced, and mutually beneficial," heconcluded. Enditem