This week U.S. Trade Representative Ron Kirk, Commerce Secretary Gary Locke and Agriculture Secretary Tom Vilsack were in Hangzhou, China to meet with Chinese Vice-Premier Wang Qishan as part of the Joint Commission on Commerce and Trade. The Joint Commission was established in 1983 when trading relations between the U.S. and China were minimal as a forum for addressing bilateral trade issues and promoting business relations. This 20th meeting of the Joint Commissions provided an opportunity to assess the changes in trade flows and how trade policies need to reflect those changes. It also laid trade policy groundwork for President Obama’s mid-November trip to China.

Twenty years ago China was a minor trade partner with U.S. exports of $5.8 billion, 1.6 percent of total U.S. exports, and imports from China of $12.0 billion, 2.5 percent of total U.S. imports. In 2008, U.S. exports to China grew to $69.7 billion, 5.4 percent of total U.S. exports, and U.S. imports from China increased to $337.8 billion, 16.1 percent of total U.S. imports. China’s exports to the U.S. in 2008 were within $2.0 billion of surpassing Canada as the largest exporter to the U.S. China is now the third largest export market for the U.S., passing up Japan in 2008.

Changes in agricultural trade have been equally dramatic. U.S. agricultural exports to China in 1989 were $1.43 billion, 3.6 percent of U.S. agricultural exports, and imports from China were $327 million, 1.5 percent of U.S. agricultural imports. U.S. exports to China in 1989 were abnormally high with grain exports at $1.13 billion, about two or three times higher than nearby years. In 2008, U.S. agricultural exports to China were $12.1 billion, 10.5 percent of U.S. agricultural exports, and imports were $3.45 billion, 4.3 percent of total agricultural imports. U.S. exports of oilseeds and products to China in 2008 were $7.4 billion and accounted for 61.4 percent of U.S. agricultural exports to China and 30.4 percent of total U.S. exports of oilseeds and products. U.S. cotton exports to China accounted for 33.7 percent of U.S. cotton exports.

Producers and consumers in both countries have benefited from the opportunities to use their respective comparative advantages in trade to improve standards of living in both countries. Regardless of the rate of economic recovery for the two economies, trade will be even more important in the years ahead.

With the Joint Commission meeting just completed, now is the time for political leaders in both countries to consider how major trading partners should approach trade policy problems that naturally develop as $400 billion in goods move across borders. Officials from each country should recognize they have more to gain from trade policy cooperation rather than the bilateral frictions of the past. They don’t need to agree on every issue, but they must work together constructively on issues that impact trade. The Joint Commission has over a dozen working groups and sub-groups that will meet over the next year to resolve issues. USTR Kirk’s suggestion to have mid-year vice-ministerial reviews of trade policy issues would provide another opportunity to increase cooperation. Officials from both governments will also be at hundreds of international meetings at the UN, WTO and other organizations where problems of common interest can be addressed.

Given the impact that China has on agricultural markets, its trade partners are increasingly interested in information about government policies that affect agricultural production, consumption and trade prospects. As was learned again in the first half of 2008 when commodities prices increased in the midst of market uncertainty, lack of information hurts both buyers and sellers. As noted earlier, U.S. oilseeds markets are heavily dependent on Chinese purchases. China has a similar situation in reverse; over 60 percent of vegetable oil consumption in China comes from imported oilseeds crushed for oil in China or imported vegetable oils. China will be a long-term buyer and the U.S., Brazil and other suppliers will be sellers. Both sides gain when markets correctly reflect underlying policy decisions.

Many trade issues in agriculture are connected to sanitary and phyto-sanitary issues. The recent agreement in the U.S. House and Senate on inspection of poultry imports from China is a hopeful sign that U.S. regulators will be allowed to make decisions based on complete information. The announcement of the pending re-opening of the Chinese pork market based on science-based international standards is an example of how the two governments can work through regulatory issues. Chinese importation of U.S. beef is another regulatory issue that needs to be addressed in coming months. Science based regulations for both countries and consistently meeting and exceeding standards by suppliers of imports are the only ways to achieve regulatory compliance and consumer confidence.

U.S. agricultural exports to China are still dominated by raw commodities, mostly whole soybeans and cotton. Integrating more products into supply chains naturally occurs as trading relationships develop. As the middle class in China expands as it economy continues to grow rapidly, U.S. consumer oriented products should find a place in the market if government policies allow them.

Currency valuation has been a perennial issue. After a 2005 decision by Chinese government officials to allow the value of the Yuan to increase in value relative to the U.S. dollar, it increased by about 20 percent by the summer of 2008. While the U.S. dollar has declined by 15 percent against developed country currencies since March, the Yuan has also declined in value because of the link to the dollar putting currency pressures on China’s neighboring exporting countries. The U.S. has made conditions more difficult by pursuing a low interest rate policy that is driving down the value of the dollar.

Redefining trade policy relationships is never easy, but is essential as trade flows change over time. China’s decision to remove national content requirements on wind energy equipment is an example of changes that can be made in newer industries that serve the interests of both countries. Working on common interests will move trade policy in a positive direction.