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US-China trade

The letter Donald Trump should write to Xi Jinping

Published 12 January 2017 | 4 minute read

It is not surprising that Chinese President Xi Jinping was one of the first foreign leaders that President-elect Trump spoke with in the aftermath of his surprising electoral victory. Given China’s strategic and economic importance – and the interconnectedness of the two economies – the implementation of Mr. Trump’s policy agenda will inevitably intersect (or in the worst case, collide with) Chinese interests, policies, and practices.

Successfully managing the US-China relationship will therefore be essential if the incoming President is to deliver on campaign pledges on jobs, growth, and trade. Laying out the parameters for a new relationship with China – one that is focused on mutual interests, mutual gains, and reciprocity – should be one of Mr. Trump’s first goals. If so, here is the letter he should send to President Xi:

Dear President Xi,

I will be assuming the office of the President of the United States at a time of growing tensions between our countries, especially in the economic, trade, and investment sphere. You are no doubt acquainted with comments I’ve made on the campaign trail about tariffs and currency manipulation, so I won’t repeat them here, other than to say that they signify the seriousness I attach to redressing imbalances which have developed in our otherwise profitable economic partnership.

These views are not mine alone. They are widely embraced across party lines, and in fact are growing. Your Embassy in Washington has undoubtedly reported back to you on recent calls on Capitol Hill to toughen the scrutiny of Chinese investments in the US – which are now at record levels.

You should take this very seriously. These sentiments reflect the growing frustration level over a business environment in China which appears to be increasingly hostile towards US and other foreign companies, while Chinese companies find a largely open door in the US.   In the absence of concrete steps on your part to address legitimate concerns, you should not be surprised to see a more restrictive regulatory approach taken towards Chinese investment in the US.

This would be a lost opportunity for both our countries. An open, fair, and balanced trade and investment relationship is strongly in our mutual best interests. Let’s review the facts:

China’s rapid ascent up the economic development ladder in recent decades has been a success story of historical proportions, and something that all Chinese can justifiably take pride in.  Yet much of this success has been propelled by the contributions of foreign companies.  Recent research indicates that FDI has contributed roughly 33 percent of China’s GDP and 27 percent of its employment, while technology transfers, state of the art management practices, and locally conducted research and development have empowered Chinese firms and workers. Entire industry sectors — and globally competitive Chinese companies — were essentially created through the contributions of FDI-providers.

Interestingly enough, the importance of FDI in China is not declining, and many of the economic goals set by your own government will in fact require FDI in order to be achieved.

Likewise, FDI from China into the US has also been beneficial.  And although this might come as a surprise to some, annual Chinese FDI into the US now exceeds US FDI into China.   China’s intended investments of $18 billion in the US thus far in 2016 already exceed last year’s level of $15.3 billion – and is one hundred times higher than the level of just a decade ago.  By the end of 2015, Chinese affiliated companies in the US accounted for almost 90,000 jobs.  And these companies are rapidly increasing their innovation-related activities.  In the late 1990s Chinese companies were spending virtually nothing on research and development in the US, but that figure has risen to $500 million in recent years, benefiting local workers and local communities through the same type of positive spillover impacts brought by US FDI providers in China.

The obvious point is that both of our countries have profited significantly from FDI inflows from the other country.  And while US FDI into China has been historically more substantial, Chinese FDI into the US is rapidly growing in importance – both for communities in the US, as well as the profitability of the Chinese corporate sector.  Ideally, we’d like to see these trends continue.

But all of this is in jeopardy, as the business environment in China for foreign companies is becoming more difficult. There is a growing sense that now that US (and other foreign investors) have helped to build up a fleet of world-class Chinese companies, they will be squeezed out of the Chinese market.  Many foreign firms contend that the regulatory regime is being used to unfairly target and harass them and that the “playing field” is being tilted towards their FDI-empowered Chinese competitors in a host of subtle and not-so-subtle ways.  We are routinely hearing concerns expressed about a lack of transparency, onerous licensing requirements, and uneven enforcement of laws and regulations.

Unfortunately, the official Chinese response has been to discount these concerns, and the perception that foreign firms are no longer welcome in China has continued to grow, while our negotiations on a bilateral investment treaty remain bogged down.  This is the atmosphere which exists between our countries as I prepare to take office.

Let’s take this opportunity to build a new relationship built upon a pragmatic understanding of the many areas in which we can cooperate for mutual gain.  It is in both our interests to create an economic environment in which US companies can compete on a level playing field in China while continuing to make substantial contributions to China’s economic development.  And Chinese companies should be free to pursue profitable investments in the US that bring jobs and dynamism to local communities from California to New York.  This is the future that citizens in both our countries deserve.

But it must be a two-way street.  The door in the US cannot remain open if the door in China is gradually closing.  Make no mistake about it:  whether in a positive sense or a negative sense, we are moving towards greater reciprocity between our two countries.  The treatment you accord to US commercial interests in China will be the treatment accorded to Chinese commercial interests in the US.  I’ve heard you speak on many occasions of the need to find “win-win” solutions.  Now is the time to put those words into practice.

The ball is in your court, President Xi.

Sincerely, Donald J. Trump

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Stephen Olson

From 2014 to January 2024, Mr. Olson was a Senior Research Fellow of the Hinrich Foundation. Mr. Olson began his career in Washington DC as an international trade negotiator and served on the US negotiating team for the NAFTA negotiations.

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