On the website of the U.S. Department of Treasury, you will find the following announcement: “The U.S.-China Comprehensive Economic Dialogue (CED) was established by President Trump and President Xi in April 2017 to enable the two countries to address and resolve the comprehensive set of economic issues in our relationship, representing the highest-level bilateral economic forum. The dialogue is co-chaired by U.S. Treasury Secretary Steven T. Mnuchin and U.S. Commerce Secretary Wilbur Ross and their Chinese counterpart Vice Premier Wang Yang, who serve as Special Representatives of the two presidents on the economic relationship. This Administration is focused on delivering concrete results for American workers and firms, and the CED will be used to seek tangible progress on issues that matter to U.S. stakeholders.” On April 1, 2009, President Barack Obama and Chinese President Hu Jintao announced and replaced the former Senior Dialogue and Strategic Economic Dialogue started under the George W. Bush administration with the U.S.-China Strategic and Economic Dialogue (S&ED) to discuss a wide range of regional and global strategic and economic issues. S&ED has been considered as an important part of the G-2 relationship between the U.S. and China. Presumably, CED continues the high-level dialogue on economic issues which are now placed on a high priority level on President Trump’s ‘Make America Great Again’ policy.
Chinese and US government officials spoke positively (reported by The Beef Site on 7-20-2017) of their first comprehensive Economic Dialogue (CED) started on July 19, 2017 in Washington after they reached a wide consensus. However, Brookings Institution (A Washington DC Think Tank) published an article, entitled, Expect More Process than Progress at U.S.-China Comprehensive Economic Dialogue, penned by David Dollar (Senior Fellow, Foreign Policy, Global Economy and Development, John L. Thornton China Center) and Ryan Hass (Fellow, Foreign Policy, Center for East Asia Policy Studies, John L. Thornton China Center) on 7-18-2017. The authors predict that “the CED session is likely to produce agreement on a one-year action plan for tackling trade and investment impediments, building on the 100-day plan inked at President Trump’s April meeting with Chinese President Xi Jinping”, but “the new action plan likely will be general and non-specific, focusing more on principles and shared commitments than on concrete steps or detailed deliverables. More broadly, we (Dollar and Hass) do not expect either side to take steps at this dialogue that would alter the trajectory of bilateral trade and investment, dynamics that have been markedly stable to date this year.” They further supported their lukewarm prediction with four reasons: “1. The United States will not make concessions on China’s priorities. 2. China does not feel pressure to cave in to U.S. demands. 3. China’s 19th Party Congress will cast uncertainty and delay in decision. 4. A potential U.S. decision on steel tariffs will cast a cloud of uncertainty over the talks.”
Although the points Dollar and Hass made are valid to a degree, they have totally missed the spirit of the high-level economic dialogue, that is, understanding principles are more important than making deals at CED. In my opinion, the word Comprehensive is the key word and mutually understanding each side’s economic principles is the essential objectives of CED. Hopefully, the two countries will accomplish that goal and then beneficial action plans will follow, perhaps as soon as Trump makes a state visit to China. Often plain language uttered by economists is making more common sense than theoretical essays made by Nobel Laureate economists. To make my point clear, I am assembling a number of relevant common sense economic principles (neither ideological arguments nor difficult theories) below:
1. In the capitalist world and market economy, freedom is proportional to money one has. Individuals who earn and spend more money have more freedom. GDP grows with capital investment but suffers with democracy. The power of one person one vote is distorted by money!
2. In the socialist world and planned economy, government plans economy rigorously. People (collectively) who earn and spend more money have more security. GDP grows with productivity and suffers from bad planning. Economic progress has little to do with democracy.
3. Economic development faces two principal challenges, first is where to get capital to stimulate economic development and second is how to manage worker migration and provide full employment. Complete free movement such as practiced in the U.S. and India already demonstrated overpopulation in the cities, poverty in the rural areas and wealth gap in the society. Government intervention such as practiced in China and Singapore must balance freedom versus social security and where and how to get capital versus where and how to distribute wealth.
4. Economic development inevitably going through industrialization (agriculture to industry) and industrial and social transformation. The issue is where and how to get capital needed for economic development. Several methods are commonly tried: A. Get capital from the rich and give to the poor (China tried and failed. Western countries’ high tax system eventually drives away capital.), B. Control population and their consumption to save capital for economic development (Tightly controlled planned economic development is more effective.), C. Get economic aid or external capital (Many small countries experienced this method but often suffered from the strings attached to the aid), and D. Military invasion to loot the wealth to sustain economic expansion (Imperialistic Colonialism is identified as an evil policy).
Capitalism and democracy are often given credit for success of economic development. Taiwan and mainland China were cited as contrasting examples prior to the rise of China. But on a deeper analysis, Taiwan’s economy has always been dependent on Mainland throughout the history except during Japanese control (Taiwan was forced to cut off any economic tie with Mainland China) and post WW II (Taiwan’s economy survived and grew with U.S. economic aid and benefitted from the Korean war and the Vietnam war, while Mainland China was suffering from no capital and sever economic sanction). Now Mainland China through her rigorous planned economic development has risen to be the second largest economy in the world and the largest US debt holder. China has gained her confidence in economic development through failed experiences, harsh economic sanctions and ingenious policies with modified capitalism. That China believed and the U.S. should re-evaluate that China’s economic success has little to do with democracy, freedom or human rights. And China’s doomsday is not likely to occur. It is time for the U.S. to understand the principles of economics that have made China succeed, for example, why isn’t China an American market economy?
Through hardship, China realized that she needs capital to develop. Through history China understood the fundamental purpose of economic development is for her people (“For the people” political philosophy) not capitalists. Through experience as a victim, China understood the evilness of military imperialism and colonialism. So China after succeeding in her own economic development seems to be adopting a genuine co-prosperity policy (such as the Asian Infrastructure Investment Bank (AIIB) and the One Belt and One Road (OBOR) project, firmly believing that the world economy is not necessarily a zero sum game. While the U.S. tends to focus on democratic procedures and individual rights (especially individual capitalist), China is focusing on results needed and desired by the people (especially common folks) from her own economic development plan. Thus, it is crucial for the U.S. to really understand the economic principles that China believes in and vice versa. We hope the CED is the right forum for the U.S. and China to understand each other’s principles and adopt win-win collaborative policies to move each nation’s economy to sustainable prosperity.