Chinese President Hu Jintao visits the United States next week. On January 19, President Obama will host President Hu for an official state visit during which the leaders will discuss U.S.-China cooperation on bilateral, regional and global issues. Homi Kharas and Joshua Meltzer preview the meeting and outline some of the challenges.
The United States Must Remain the World’s Best Exporter
Homi Kharas, Senior Fellow, Global Economy and Development
President Obama promised to double U.S. exports from $1.5 trillion in 2009 to $3 trillion in 2014. Export growth was up by 17 percent in the first 10 months of 2010. But surprisingly, considering the rhetoric last year about Chinese currency manipulation, the growth of U.S. exports to China was almost double the export growth to other countries—an estimated 32 percent last year—meaning that U.S. exports to China in 2010 could have surpassed $100 billion for the first time ever. This is good news because the President has repeatedly emphasized that meeting his export growth targets depends on success in China, in particular, and in Asia more broadly.
Asia’s growth is being driven by high levels of investment. Asian countries need machinery, electrical equipment, vehicles, and other manufactured goods to power their economies. The U.S. must remain the world’s best exporter in these critical areas. It has been losing the battle on this front, not just to Chinese competitors but also to Japanese, Korean and German firms. Those countries have comprehensive approaches to exports because their economies depend on export success. The U.S. has been less aggressive. Its share of manufactured exports to China is still less than half, while for the Japanese and Germans, manufacturing accounts for two-thirds to three-quarters of their exports.
President Obama needs to emphasize to President Hu that the U.S. is going to compete fiercely to provide China with the best, highest quality machinery in the world to help them grow, with technical support and financing that equals what others can provide. In return, he must ask that China base its trade decisions on economic factors, not on political factors. He should also serve notice that the U.S. is prepared to compete with Chinese firms across the world. With a financing package from U.S. Ex-Im Bank, GE has landed a large contract to sell locomotives to Pakistan. That shows that on a level playing field, U.S. exports, supported by government policies, can be globally competitive.
The yuan exchange rate is one important issue between the U.S. and China, but countries today face global competition, not bilateral competition. President Obama would do well to remind President Hu that the U.S. remains the world’s best and largest exporter and that he is determined to take measures to keep it that way.
Jintao’s Visit Will Set the Tone for Trade and Climate Change Issues
Joshua Meltzer, Fellow, Global Economy and Development
President Hu Jintao’s visit to Washington, DC will provide an important opportunity to set the tone for trade and climate change issues for the year ahead.
The United States was pleased with the outcome of the 21st Session of the U.S.-China Joint Commission on Commerce and Trade held in December 2010. Progress was made on issues such as intellectual property and government procurement provisions that promoted so-called indigenous innovation. The softened tone of trade discussions during President Hu’s visit can also be attributed to the narrowing of the U.S.-China trade deficit from $22.9 billion in November to $13.1 billion in December 2010. However, with the 2010 U.S.-China trade deficit approaching $183 billion, the bilateral trade imbalance could be a topic of contention. Continued agitation by the U.S. Congress for action to address undervaluation of the Yuan means that the U.S. administration will need to manage this issue carefully. While the U.S. and China should continue to discuss the pace and rate of revaluation, this needs to be part of a broader conversation on rebalancing Chinese growth toward domestic consumption, and improving market access for U.S. goods and services, and bilateral investment opportunities.
The Doha Round will be another important issue, with negotiators preparing for another push to finish Doha this year. Progress with World Trade Organization disputes and the recent request by the U.S. for WTO consultations with China over wind power subsidies are also likely to figure.
On the climate change and energy front, the better-than-expected outcome from the U.N. climate change meeting in Cancun in December will set a positive tone for discussions. In particular, progress was made on the measurement, reporting and valuation of climate change mitigation actions and on financing. President Hu’s visit should also provide an opportunity to discuss how China will reflect its climate change policy in its 12th Five Year Plan. The expectation is that China will include the 40-45 percent carbon intensity target it announced at the Copenhagen climate change meeting in December 2009. Other climate change targets are also likely, including one on new energy intensity to replace the 20 percent target in its 11th Five Year Plan.
Without progress in the U.S. on carbon pricing, bilateral climate change and energy discussions should focus on increasing the development and deployment of climate change technologies. The U.S.-China Clean Energy Research Centers (CERC) that were agreed upon when President Obama visited China in November 2009 provide a framework for deepening bilateral cooperation in this area. The United States and China will provide $75 million each in matching funds for research at the CERC that will be initially focused on developing key climate change technologies for building energy efficiency, clean coal including carbon capture and storage, and clean vehicles.