General

In June 2022, U.S. inflation surged to its highest level in 40 years, and overall there are few signs of a sharp pullback in the second half of the year. The IMF also warned of high inflation in the United States. Experts from many countries clearly pointed out that the high inflation in the United States is mainly caused by multiple factors such as its excessive monetary policy, high fiscal deficit, implementation of economic sanctions, and additional tariffs, but the impact is global.

Looking back over the past 40 years, the United States has been able to maintain low inflation and enjoy the dividends of low-cost consumption, thanks to the rapid advancement of globalization and the low-cost advantages of labor and land in emerging markets and developing countries led by China. Undertake global manufacturing transfer and ensure global supply capacity. Especially since China joined the WTO in 2001, China's huge industrial manufacturing capacity has helped countries such as the United States to quantitatively easing monetary policies without creating significant inflationary pressures, driving down the global inflation level. China's July statistics were released, and the CPI was 2.6%, showing the stability, resilience and positive trend of China's economy. The steady recovery of China's economy is an important guarantee for ensuring the supply of necessary global supplies, stabilizing the global supply chain, and hedging against high inflation. It also increases the certainty in the increasingly complex international environment.

The continuation of high inflation in the United States has dragged down the recovery of the world economy, and China cannot survive alone. As each other's most important economic and trade partners, China and the United States have maintained a very high growth in bilateral trade despite constant frictions. According to data from the United Nations Conference on Trade and Development, from 2009 to 2021, the proportion of U.S. imports from China in its total imports has remained between 18% and 22%; in 2019, affected by trade frictions, it decreased by about 3 percentage points year-on-year. growth resumed quickly. China is also an important export market for U.S. agricultural and machinery products. According to Chinese customs data, in the first seven months of this year, the total value of Sino-US trade was 2.93 trillion yuan, an increase of 11.8% year-on-year. The export potential data of the International Trade Center shows that the largest potential market for China's exports is the United States, and the gap between the current export potential and actual exports exceeds 200 billion US dollars. U.S. export potential data to China also shows that the U.S. export gap to China exceeds $100 billion. Since 2018, China and the United States have each dropped to each other's third-largest global trading partners. When the United States launched tariff trade sanctions against China, China also countered the US tariff measures by reducing its purchases of agricultural products such as soybeans and corn from the United States. American farmers suffered the most from the trade friction, and Chinese foreign trade companies were also under increased pressure from the turmoil in the U.S. export market. It can be said that the Sino-US trade friction has no real cause.

The aggressive interest rate hikes and legislative measures adopted by the United States in response to high inflation have raised eyebrows. In the first half of 2022, the Federal Reserve raised interest rates for four consecutive rounds, causing many countries to worry about the overflow of high inflation in the United States and the return of capital, and the debt risks of emerging markets and developing countries have expanded. The "2022 Weakening Inflation Act", a comprehensive bill that reduces deficits and increases investment, is essentially a helpless act under the emergency mentality of all parties, and has no substantial significance for controlling inflation. Moreover, raising taxes and increasing fiscal subsidies is contrary to its original intention of controlling high inflation and reducing fiscal deficits.

This round of high inflation in the United States may become a window of opportunity for the easing of Sino-US trade frictions. The list of the first round of high tariffs imposed by the United States on China expired on July 6. The economic outlook has deteriorated due to high inflation in the United States, and domestic calls for lifting tariffs on China have grown louder. The U.S. business community and consumers have been putting pressure on the Biden administration to lift or at least reduce tariffs on Chinese goods, thereby easing soaring U.S. inflation. U.S. Treasury Secretary Yellen has also proposed many times that some tariffs on China should be lifted to deal with inflation, and "removing some tariffs can alleviate some problems." In the face of high inflation and declining support among the American public, reducing inflation will certainly be one of the main goals of the Biden administration before the mid-term elections in the U.S. Congress in November. However, due to the recent ferment of Pelosi's visit to Taiwan, Sino-US relations have become tense again, which has intensified the tendency of the tariff issue to be politicized by the Biden administration. However, the persistently high inflation in the United States has made it impossible for it to have any confidence in its trade friction with China, nor can it afford the follow-up costs brought about by the persistently high tariff policy. In the context of globalization, the intertwining depth of countries and the close economic ties are not comparable to those during the Cold War. The United States views China-US relations with a Cold War mentality, which will only further stimulate China's technological strategic autonomy, weaken the US's advantages, and fragment the normal international economic and trade order. The fact that the United States conducts political confrontation in the name of technological competition and industrial policy is anti-globalization and contrary to the laws of the market economy;

At present, when the domestic political turmoil in the United States continues, the effective means to deal with high inflation are insufficient, and the Biden administration is incapable of doing things, it is a good strategy to use external forces to achieve internal diseases and external cures. Whether it is to partially or completely cancel high tariffs, or to continue and expand tariff exemptions, the United States needs to use economic and trade excuses to divert domestic conflicts and break the deadlock in Sino-US relations. It may be an effective means with less negative effects to improve the domestic supply security capacity and reduce the living cost pressure of its domestic residents through trade openness.

Seizing this time window is an opportunity for both China and the United States, and it is also beneficial to the world economy. High inflation in the United States has strong spillover effects, reducing global growth expectations. Aggressive rate hikes by the Federal Reserve will also seriously compress the economic recovery space of various countries, especially developing countries, and will drag down the process of world economic recovery. Therefore, its response must comprehensively consider the interests of other countries.

The U.S. government should follow the common goal of domestic public opinion and international economic recovery, and promote the easing of Sino-U.S. trade frictions through pragmatic cooperation. China should also follow the trend of globalization, and while steadily advancing its own economic development, it should actively act to promote the high-level economic and trade ice-breaking trip between China and the United States.