Disrupting US-China Relations Will Incur High Costs

The United States and China, the world’s largest markets, are major trade partners. The relationship provides numerous benefits including affordable goods for households and millions of jobs for both nations: China has an estimated 16 million, albeit many with low wages, engaged in exports to the US, and the United States has more than 1 million engaged in exports to China, explains Farok Contractor, a professor in the Management and Global Business Department of Rutgers University. Donald Trump has revived an outdated charge that China engages in currency manipulation – though formal designation requires the US Treasury Department finding a significant trade surplus, a material current account surplus and persistent one-sided intervention by a trade partner in the foreign exchange market with repeated net purchases of foreign currency. That is not the case with China, which has struggled to prop up its currency in recent months, and Contractor also offers a brief argument to counter allegatons that China manipulates the yuan to increase exports. “Proposals to return jobs to the US are economically non-viable,” Contractor concludes. “Disruption of global value chains would add hundreds of billions per year to US businesses, increasing prices for US buyers – with extra costs falling disproportionately on lower-income Americans.” Political leaders must understand the high stakes of disrupting the trade relationship, and Contractor concludes that cooperation is a better strategy for contending with the challenges of the 21st century economy. – YaleGlobal