A Study of Economic Constraints on US-China Commercial Diplomacy

(By Zhang Lijuan and Wu Ying) 

Abstract: The extent of trade interdependence between China and the US changes with the increasing volume and increasing imbalances of bilateral trade. While growing US export dependence on the Chinese market suggests that seeking market expansion in China is one of the major objectives of the US commercial diplomacy, China’s much higher export dependence on the US market provides the US with more bargaining power in trade negotiations. Our empirical studies indicate that China’s investment in the US government bonds helps maintain ultra-low interest rates in the US, which in turn stimulates US direct investment in China. Lastly, a comparative study of economic constraints on US-China and US-Japan commercial diplomacy finds that the lack of strategic trust between the US and China explains why China often becomes the target of the US trade politics despite the fact that the Chinese market is more open than the Japanese market.