Bridging The Pacific: Toward Free Trade and Investment Between China and the United States

Peterson Institute for International Economics
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The terrain of the world trading system is shifting as countries in Asia, Europe, and North America negotiate new trade agreements. However, none of these talks include both China and the United States, the two biggest economies in the world. In this pathbreaking study, C. Fred Bergsten, Gary Clyde Hufbauer, and Sean Miner argue that China and the United States would benefit substantially from a bilateral free trade and investment accord. In the process, they contend, each country would also achieve progress in addressing its internal economic challenges, such as the low saving rate in the United States.

Achieving greater trade and investment integration could be accomplished with one comprehensive effort or through step-by-step negotiations over key issues. The authors call on the United States to seek liberalization of China's services sector as vital to securing an agreement, and they explain that such contentious matters as cyber espionage and currency manipulation be handled through parallel negotiations rather than in the agreement itself. This is an important study of the benefits and difficulties of a complex matter that could yield dividends to the two economies and help stabilize the security and well-being of the rest of the world.

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About the author

C. Fred Bergsten, senior fellow and director emeritus, was the founding director of the Peterson Institute for International Economics (formerly the Institute for International Economics) from 1981 through 2012. He is serving his second term as a member of the President's Advisory Committee for Trade Policy and Negotiations and was co-chairman of the Private Sector Advisory Group to the United States-India Trade Policy Forum, comprising the trade ministers of those two countries, during 2007-14.

Gary Clyde Hufbauer, Reginald Jones Senior Fellow since 1992, was formerly the Maurice Greenberg Chair and Director of Studies at the Council on Foreign Relations (1996-98), the Marcus Wallenberg Professor of International Finance Diplomacy at Georgetown University (1985-92), senior fellow at the Institute (1981-85), deputy director of the International Law Institute at Georgetown University (1979-81); deputy assistant secretary for international trade and investment policy of the US Treasury (1977-79); and director of the international tax staff at the Treasury (1974-76).

Sean Miner, China program manager and research associate, has been with the Peterson Institute since June 2013.
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Additional Information

Peterson Institute for International Economics
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Published on
Oct 28, 2014
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Business & Economics / Economics / General
Business & Economics / International / Economics
Political Science / International Relations / Trade & Tariffs
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The relation between China and the United States is arguably the most important bilateral relation in the world today. The U.S. and China are respectively the largest and the second largest economies in the world. They are also respectively the largest and the second largest trading nations in the world as well as each other’s most important trading partner. If China and the U.S. work together as partners towards a common goal, many things are possible. However, there exist significant friction and potential conflict in their economic relations. The large and persistent U.S.-China bilateral trade deficit is one of the problems.

It is essential to know the true state of the China-U.S. trade balance before effective solutions can be devised to narrow the trade surplus or deficit. The impacts and potential impacts of the 2018 trade war between China and the U.S. on the two economies are analysed and discussed. The longterm forces that underlie the economic relations between the two countries beyond the 2018 trade war are examined. In this connection, how a “new type of major-power relation” between the two countries can help to keep the competition friendly and avert a war between them is explored.


Lawrence J. Lau’s timely The China-U.S. Trade War and Future Economic Relations is full of careful analysis, penetrating insight and helpful suggestions from the world’s preeminent economist on this relationship.

—Michael J. Boskin
Tully M. Friedman Professor of Economics, Stanford University
Former Chair, U.S. President’s Council of Economic Advisers


This sober and systematic study of U.S.-China trade relations and of technological development in the two countries is particularly timely. Lawrence Lau is one of the world’s foremost economists working on these issues.

—Dwight H. Perkins
Harold Hitchings Burbank Professor of Political Economy, Emeritus
Former Chair, Department of Economics, Harvard University


This is a timely and penetrating analysis of the China-U.S. trade and economic relations, from its origins to its impacts and to a way forward.

—Yingyi Qian
Chairman of the Council, Westlake University
Former Dean, School of Economics and Management, Tsinghua University
Counsellor of the State Council, People’s Republic of China

Lawrence Lau’s book on the current U.S.-China trade war is insightful, balanced and comprehensive; rich in data on trade, investment, science and technology. It is essential reading for anyone who wants to get past the headlines.

—A. Michael Spence
Nobel Laureate in Economic Sciences (2001)
Senior Fellow, The Hoover Institution, Stanford University

 Lawrence Lau brings light in the form of rigorous honest fact-based economic analysis to a subject where most of the discussion has been heated bluster, false claims, and political rhetoric.

—Lawrence H. Summers
Former U.S. Secretary of the Treasury; Former President, Harvard University

 There is no topic more important, or more timely, or more urgent, than the China-U.S. trade war. Professor Lau is the ideal person to write about the implications of the China-U.S. trade war and the proposed resolution.

—Tung Chee-Hwa
Vice-Chairman, Chinese People’s Political Consultative Conference National Committee
Chairman, China-U.S. Exchange Foundation

The history of Sino-American relations, to a great extent, has been a shared history. Lawrence Lau’s timely and penetrating study will tell us it is still in best interest for both countries if they continue to pursue a shared journey and destination instead of parting ways.

—Xu Guoqi
Kerry Group Professor in Globalization History, The University of Hong Kong
Author of Chinese and Americans: A Shared History


This beautifully composed book uses nontechnical language to unravel the intricacies of the 2018 U.S.-China trade war, together with its long-term impact. I learned a lot from reading it.

—Chen-Ning Yang
Nobel Laureate in Physics (1957) 

China is emerging as a new great power in Asia. But what kind of power will China become--a wealthy trading partner or a belligerent adversary? Will expanding economic links between China and the world community bring about political moderation in Beijing? Or will it endow the Chinese leadership with all the money it needs to create a modern and even more dangerous People's Liberation Army? Weaving the Net argues for an American strategy that acknowledges and is fully prepared to deal with the vast uncertainty about China's future trajectory. " Tough minded logic.... Weaving the Net ought to, and probably will, serve as the definitive guide to how and why American policy towards China will and should toughen." The Economist " Weaving the Net is a hard-hitting, well-reasoned argument for a sustainable U.S. policy toward China, and a stimulating exploration of an issue that will dominate the early 21st century." Robert A. Scalapino, University of California, Berkeley " ... makes the case that conditional engagement is better than conditional containment. To succeed, America has to persuade the Chinese that it is engagement, not containment, which is conditional." Lee Kuan Yew, Senior Minister, Republic of Singapore " ... a major contribution to the current debate on China policy. It identifies...ten principles to guide China policy and analyzes China's underlying economic and security trends.... The result is a very informative, terse book that should inform policymakers and opinion leaders." Michael Oksenberg, Stanford University
...fills a significant gap in the existing discourse by providing a comprehensive analysis of a crucial structural feature of South-South relations. Alex Fernández Jilberto (who sadly passed away shortly before the book was published) and Barbara Hogenboom have put together insightful chapters on the bilateral relations between individual Latin American states and China, written by knowledgeable specialists, to produce one of the best books yet in its field. International Affairs

This is an excellent macro study of Sino-Latin American relations. The credentials of the contributors are first-rate, as are the organization and readability of the book - Highly Recommended. Choice

[This] volume is filled with rich data drawn from timely empirical research...[A] crucial contribution to Latin American Studies on a subject of ever increasing urgency. From a political economy perspective this sophisticated yet accessible volume covers the waterfront of major domestic and international relations issues raised by China's growing influence in the region. The focus on the longer-term development implications of the relationship for Latin America raise a critical question that cuts to the core of Latin America's perennial dilemma. How will the region wean itself off raw materials exports as the principal engine of economic growth? The relationship with China, in any case, does not seem to be the path. Eduardo Silva, Tulane University

The last quarter of the twentieth century was a period of economic crises, increasing indebtedness as well as financial instability for Latin America and most other developing countries; in contrast, China showed amazingly high growth rates during this time and has since become the third largest economy in the world. Based on several case studies, this volume assesses how China's rise - one of the most important recent changes in the global economy - is affecting Latin America's national politics, political economy and regional and international relations. Several Latin American countries benefit from China's economic growth, and China's new role in international politics has been helpful to many leftist governments' efforts in Latin America to end the Washington Consensus. The contributors to this thought provoking volume examine these and the other causes, effects and prospects of Latin America's experiences with China's global expansion from a South - South perspective.

Alex E. Fernández Jilberto was Senior Lecturer in International Relations at the University of Amsterdam until his death in 2010. Barbara Hogenboom is Senior Lecturer in Political Science at the Centre for Latin American Research and Documentation (CEDLA) in Amsterdam. Together they have published several edited volumes, including Big Business and Economic Development - Conglomerates and Economic Groups in Developing Countries and Transition Economies (Routledge, 2008).

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