How we all gain in the power of two

Updated: 2012-09-15 14:08

(China Daily)

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A free trade deal between China and the US is full of economic and political potential

During the recent US-China Investment Cooperation Forum in Beijing, new trade-cooperation mechanisms were put on the table and negotiations on free trade zones was specifically mentioned.

Trade relationships are key to the Sino-US relationship. While both countries are in the process of choosing new leaders, positive suggestions and plans from an economic perspective are essential to the two countries' relationship. Establishing a free trade zone is one of the most creative suggestions.

How we all gain in the power of two

In recent years, there has been plenty of dialogue between China and the US over trade and economic issues, but barriers to bilateral trade relations remain.

It may well be wise to take some bolder and more creative actions. As economists and officials of both countries have suggested, China and the US should start negotiations on a free trade zone, which will be a difficult process but could eventually help create a better trading environment.

The world is now going through a historic restructuring of its economy. New emerging economies account for bigger chunks of the global economy, from about 20 percent in the past 100 years to 30 percent now. In terms of proportions of the global economy, it is estimated that these emerging economies will surpass developed economies in the next 20 years.

But with these changes come huge risks. Conflicts will arise when emerging economies and developed ones strive for more space to develop. In the past, new international orders were formed after such conflicts were solved. However, with today's technological development, clashes between large economies would be disastrous for the whole world, and therefore need to be avoided.

China is the world's largest developing country, while the US is the largest developed country. Dealing with each other properly is essential to both, but on this issue there is neither textbook nor historical experience from which to learn.

Ideally, China and the US should be complementary to and supportive of each other, since each country needs the other side's cooperation and success for its own development.

On the one hand, China is now needs creativity and technology, traditional US strengths, to restructure its industries. On the other, the US wants the potential of China's large market to support its economic revival.

While China and the US are pursuing new methods of cooperation, innovations should first be applied in the economic field, in which it would be easier for the two countries to realize a win-win situation. Indeed, initiating negotiations on a Sino-US free trade zone would be beneficial in just such a way.

First, it would help improve trade relationships between the two countries. China and the US are each other's major trading partner. In 2011, bilateral trade between the two countries reached $446.7 billion, 180 times that of 1979. Last year, China's imports from the US reached $122.2 billion, up by 20 percent year-on-year. China has also been the fastest-growing destination for US exports for 11 consecutive years.

According to statistics from the US-China Business Council, US exports to China grew 468 percent in the past 10 years, while the figure was 55 percent for the rest of the world. US goods, markets and technology have also energized the Chinese market. I believe that with the establishment of a free trade zone, trade volumes and the corresponding benefits will continue to grow.

Second, the zone would also be good for lifting trade barriers. The various economic crises have resulted in a downturn in global trade; according to the World Trade Organization, cases related to trade protectionism reached 340 in 2011, a huge rise from 220 in 2010.

History has proved that trade protectionism only increases trading costs, and does nothing to help the local economy. Trade wars between large economies will hamper the healthy and sustainable development of the global economy.

Realizing free trade between the world's two largest economies can minimize trade barriers and stabilize the Sino-US trade relationship.

Also, the relevant negotiations would constitute a real outcome for the China-US Strategic and Economic Dialogue. The resolutions reached after several rounds of these talks are nothing but ideas on paper. The negotiation of a free trade zone could transform these words into realities.

Last, the long-term strategic benefits cannot be ignored. In recent years, the Asia-Pacific region, especially China, has become a growing engine of the world economy.

There is great market potential in the rise of China's middle class. Reports say that it is made up of about 240 million people and is growing by 10 percent every year. However, the consumption capability of the Chinese middle class is still one-fifth of their US counterparts. If this potential can be unleashed, it would provide great opportunities for the world economy, and the free trade zone would help the US to get involved.

With these benefits, it is obvious that the talks on establishing a free trade zone are necessary and preparation should be underway. China and the US can gather think tanks to undertake research and work out practical plans. The research should include a thorough study of influences, costs and outcome of establishing such a zone.

China has made some progress in establishing free trade zones. Up to the end of 2010, China had signed free trade agreements with 10 economies including the Association of Southeast Asian Nations, Chile, Singapore, New Zealand and Peru. It is negotiating with or researching nine others.

Initiating negotiations for a Sino-US free trade zone would also be a positive signal to Asian countries, one that may further stabilize the region's economic and political environment.

The author is a researcher at the China Center of International Economic Exchanges. The views do not necessarily reflect those of China Daily.