Reciprocal Openness: The Inevitable Path for China Toward a Developed Country

Abstract

Reciprocity has been the fundamental principle underlying the postwar international trade regime. Born as the antithesis of beggar-thy-neighbor trade policy, the reciprocal principle not only helped the United States mutually reduce tariffs with other countries and established the multilateral trade regime in the postwar era, but also sustain the European integration by removing various trade and investment barriers, which eventually led to the rise of the European Union. As a result of practicing the reciprocal principle, intra-industry trade developed greatly among European countries and the United States, which not only glued the Western alliance together during the Cold War but also prevented developed countries from engaging themselves in major trade conflicts in the past decades. The Japanese and Chinese failures of reducing trade and investment barriers under the reciprocal principle and the lack of development of intra-industry trade after becoming an economic superpower were the driving forces behind the US-Japan trade war and the US-China trade war. For China to become a developed country, it needs to embrace the reciprocal principle, remove trade and investment barriers, and develop the intra-industry trade in high tech and new tech industries with developed countries.

Keywords: reciprocal openness, the Thucydides trap, the Samuelson trap, the intra-industry trade, Smoot-Hawley Tariff Act, the Reciprocal Tariff Agreement Act, European Economic Community, the non-tariff barriers, the US-Japan trade war, the US-China trade war, the generalized system of preferences, Made in C