Tech seen at root of dispute over trade

The trade deficit is the worst reason for a trade war "because it's a misunderstanding, and we should not have trade wars over misunderstandings," said Jefferey Sachs, a professor at Columbia University and a special advisor to UN's Secretary-General.

"China happens to run a current account surplus, that means China provides savings for investment in other parts of the world," and "the United States happens to run a current account deficit, that means the United States happens to borrow funds from the rest of the world," Sachs said.

"None of these per se has much if anything to do with trade policy. But there is a basic confusion, including in high-levels of the US government, which says if the US is running a trade deficit, somebody must be cheating the US in trade policy, that this must be evidence someway that the other side is not behaving properly," he explained.

He spoke at a high-level symposium called "Strengthening Multilateralism and Multilateral Trading System in the Age of Globalization" held at the United Nations headquarters in New York on Friday.

Sachs explained that China is a high-saving country and a high-investing country, and the saving exceeds the domestic investment.

However, the US is a relatively low-saving country, "the investments in the US, which are around 20 percent of GDP, are higher than the national saving rates, which are now around 17 percent of GDP growth," he said.

"The US invests more that it saves, it borrows from the rest of the world. It's been like this for 20 years, it has nothing to do with China's trade policy or any other countries' trade policy," he reiterated.

"A trade deficit is there for a sign of intertemporal choices of saving and investment not of trade policy," he said.

For the current trade policy tensions, other than trade deficits, Sachs said there are two dimensions — technological competition and a shift in income distribution.

"What is really at the heart of the tension right now — this is the real politics of these tensions — China is soaring in its technological capacity, this is very impressive and positive for the world," he said.

China announced the Made in China 2025 policy a few years ago, intending to gain preeminence in 10 core high tech sectors by 2025. "This has created profound anxiety in the US, and this is the really source of the trade tensions," he said.

Sachs said, according to data, right now, East and Southeast Asia have more research and development spending by far than Europe and the US.

"So if you take China, Korea and Japan, it is the world's largest center of technological development," he said.

"This is something new. This is a change in world geopolitics for the first time in hundreds of years," he added.

He said this is the drama from the US perspective that the US technological preeminence is certainly now going to be matched in many ways by China's technological preeminence.

"This is where the tensions lie and this is why we see the US blocking China's purchase of high-tech companies, the export of high-tech goods. This is a technological competition, which is quite hot," he explained.