China-US trade disputes: from a long-term economic growth perspective

YAO Yang1 ZOU Jingxian2

(1.National School of Development, Peking University)
(2.National Academy of Development and Strategy, Renmin University of China)
【Knowledge Link】secular stagnation; Rust Belt

【Abstract】The China-US trade frictions apparently stem from the long-standing current account imbalances between the two countries. However, as we argued in this article, the fundamental cause is the difference in long-term economic growth and productivity progress between the two countries. History shows that many developed countries, including the US, have achieved long-term and steady current account surplus during their economic take-off and catch-up periods. Empirical evidences also show that (relative) economic growth rate is more fundamental in determining a country’s current account status. There are two channels for economic growth to induce trade frictions: one is that a country tends to raise trade frictions when it experiences a slowdown in economic growth, while the other is that the change in economic ranking may also deteriorate trade conflicts. The former is mainly driven by the dissatisfaction of the deficit countries, while the latter is driven by the world-wide adjustment in terms of economic and political power. Since a country’s long-run economic growth relies on the improvement in technology and productivity, the future of the trade frictions will depend on the race between “technological progress” and “accidents” of conflicts that arise from intensifying rivalry between the two powers.

【Keywords】 trade friction; economic growth; technological progress;

【DOI】

【Funds】 Ministry of Education of the People’s Republic of China (18YJC790247) The National Social Science Fund of China (14ZDB123) The National Social Science Fund of China (17ZDA097)

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(Translated by XU Yingmin)

    Footnote

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    [10]. [3] This is because along with the increase in economic growth rate, the rise of savings rate is steeper than investment rate. The intuition is that economic growth has a more direct effect on the savings rate than the investment rate. For specific evidence, please refer to Yao, Y. & Zou, J. Economic Research Journal (经济研究), (3): 51–65 (2016). [^Back]

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    [14]. [1] Based on the weighted average calculations, this may stem from the accelerated growth rate of previously developing trading partners, or from the increased trade between the US and developing countries with faster growth. [^Back]

    [15]. [1] Quoted from Bob W., Fear: Trump in the White House, Simon & Schuster, 2018. [^Back]

    [16]. [2] The original text is as follows. “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down$100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!” [^Back]

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This Article

ISSN:1007-0974

CN: 11-3799/F

Vol , No. 01, Pages 146-159+8

January 2019

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Article Outline

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Abstract

  • 1 Difference in economic growth: an important factor that determines the structure of current account
  • 2 Difference in growth rates and trade frictions between the US and its trading partners
  • 3 “Secular stagnation” of developed countries and the change in global economic layout
  • 4 Looking into the future: the race between technological progress and the “accidents” among countries
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