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Why a China-USA trade war will hurt both

If China and the US fail to resolve their trade dispute, we could witness the ultimate battle between the world’s two largest economies.

The hi-tech industry will be a focal point of any future trade war, given growing concerns in America as China starts to catch up with the US in some key technologies.

A review of the US trade policy shows that Washington is trying to stall China’s high-tech industry development in a number of ways, such as restricting hi-tech exports and direct technology transfer.

Meanwhile, the US is also limiting Chinese hi-tech exports to America.

China may enjoy a huge trade surplus with the US, but many American companies also gain from China trade.

Apple, for instance, earned US$18 billion from China market in last fiscal quarter, representing 20 percent of its total sales revenue.

In another case, China market contributed US$12 billion or nearly 13 percent of Boeing’s total revenue last year.

Leading American tech firms like Intel, Texas Instruments, Nvidia, Micron Technology and Qualcomm all have big presence in China.

A quickly emerging middle class in China has become the major engine driving growth of a wide range of US firms.

The US, meanwhile, also has a big service trade surplus with China. In 2016, that figure stood at US$37 billion, the largest among its trade partners.

The US is a beneficiary of globalization. By keeping high value-added R&D, marketing and sales operations at home, and outsourcing low value-added parts such as processing and packaging to places like China, American firms have gained considerably.

Computers & electronics, transport vehicles and machinery are some of the industries with fastest growth rate in US manufacturing sector. They are also the sectors witnessing the fastest import growth from China.

An unofficial survey shows that Chinese imports help US households save around US$850 each on average per year.

China is now among top three markets for American exports from 33 US states. The Asian giant is the biggest market for US soybeans and aircraft, and second largest export destination for American cars, integrated circuits and cotton.

Over the last decade, US exports to China expanded by 11 percent, while its exports to the world overall grew only by 4 percent.

The fact is that the US is relying more and more on China. Escalation of the trade war will only end up hurting both.

The full article appeared in the Hong Kong Economic Journal on March 26

Translation by Julie Zhu with additional reporting

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