For the 6th year, the U.S.-China Strategic and Economic Dialogue (S&ED) will take place July 9-10th between key commerce and foreign policy officials from Beijing and Washington in an attempt to open up investment and trade opportunities between the world’s two largest economies. The U.S. and China are each other’s second largest trading partners and have one of the most robust bilateral economic relationships in the world. From 2012 to 2013, overall trade in goods increased and Chinese foreign direct investment into the U.S. nearly doubled. Still, a few primary economic issues remain unresolved between the two powers and the S&ED talks represent an opportunity to discuss these issues in detail.
Intellectual Property Rights
“The biggest threat to the United States-China relationship is the undermining of confidence of American business to invest in China due to corruption, intellectual property piracy and cyber attacks.”
A 2013 report issued by a private commission revealed that China is responsible for around 50-80% of the roughly $300 billion suffered by the American economy from intellectual property theft. Last month, five Chinese officials were indicted on charges of hacking U.S. corporate networks in an attempt to steal trade secrets, prompting China to label the charges as hypocritical and a “double standard” in light of the NSA spying scandal. With the debate over IP rights fresh in the minds of both parties, this will no doubt be a contentious yet crucially important topic on the S&ED agenda.
“Our problem with China from a manufacturer’s perspective is that they have access to our market, but we don’t have access to theirs. If we had access to their market like they have ours, this trade deficit would quickly go away. A bilateral investment treaty is good for China, but really good for us.”
While China’s investment into the U.S. is increasing exponentially, U.S. investment in China has plateaued and even begun to diminish as long-standing laws meant to protect certain industries, especially in technology and financial services, have been an obstacle for U.S. companies looking to increase their investment in China and Chinese companies. Currently, the U.S. has bilateral investment treaties with 42 other nations, and getting the Chinese to open their massive economy to foreign investors is a key goal for the U.S. in these talks.
Despite not officially naming China a currency manipulator since 1994, the U.S. has long pressed China to allow its currency to float freely rather than intervening the foreign exchange market to keep the yuan artificially low. By doing this, China puts U.S. businesses, particularly in manufacturing, at a distinct global disadvantage. China is too important a player in the international economy to continue to play fast and loose with the widely accepted rules regarding currency valuation, and this is an issue which the U.S. can afford to take a somewhat firm stance. Despite the World Trade Organization’s murky stance on the international legality of China’s currency devaluation, there is no doubt that it is a form of export subsidy, albeit an indirect one.
The U.S. has an opportunity over the next 48 hours to increase its economic security and expand business opportunities in one of the most profitable markets in the world. At a time when U.S. investors are salivating over the impending IPO by Chinese e-commerce giant Alibaba which is scheduled for next month, the timing could not be better for U.S. officials to begin chipping away at some of the biggest barriers to better economic relations with China.