The dialogue's strategic track will probably reach principled consensuses on some of the issues such as global economic resurgence, world economic balancing, cooperation of the two countries in new energy resources and related issues. Two topics promise to be the hot center of negotiations.

    Currency appreciation cure for trade imbalance – a red herring

    The China-U.S. trade volume reached US $300 billion in 2010 while China's trade surplus stood at US $250 billion. The figure may trigger U.S. trade protectionism, but China is the fastest growing market for U.S. exports. However, China doesn't seek a trade surplus. A trade surplus with the U. S. does not accrue to China but is re-distributed on a regional basis, as a result of the international division of labor and trade balance.

    An illustration of the problem printed in the Washington Post is a popular example: though an iPhone is sold at US $600, less than one third of the profit goes to component suppliers and assemblers. Only few dollars are paid to Chinese assemblers, far less than to the component suppliers in Japan, South Korea and Germany. For most products, the beginning and the end parts of the process make the biggest contribution: research & development, along with distribution, sales and services, share the greatest part of the profits. Trade surpluses with the U.S. produced by Chinese manufacturing and assembly are being redistributed to China's other trading partners like Japan and South Korea. Some things promise to change this situation; the U.S. should relax restrictions over technology exports to China and acknowledge its market economy status so as to create a healthy environment and expand trade on both sides of the Pacific.

    But the U.S. holds that China obtains a competitive advantage in trade via its lower currency value, which causes the trade imbalance between China and U.S. Consequently, in some American political and academic circles there is a call for RMB appreciation. However, the RMB's value is not the reason for the weak competitiveness of the U.S. economy or its dwindling employment opportunities. Take the currency fluctuation between the U.S. dollar and Japanese yen for example; the yen was under heavy pressure and appreciated sharply against the U.S. dollar in 1985, but a favorable balance of trade between Japan and U.S. did not decrease to any real extent in the following decade. Although some conventional export products shrunk due to the change in competitive conditions, the export of high-tech products kept growing. Moreover, due to Japan's long-term economic downturn, it was impossible to increase its importation from the U.S. The trade imbalance between the U.S. and Japan hasn't fundamentally changed and this is concealed by the trade imbalance between the U.S. and China. The international economic imbalance is rooted in the imbalances of U.S. macroeconomic policy, the savings and consumption ratio, a loose monetary policy, rampant financial speculation and weak supervision of markets.

    Whenever a great power is rising, its currency becomes more valuable. The RMB exchange rate against the US dollar has increased over five percent since 2005. The figure was 3.5 percent in 2010 alone. Therefore, the RMB should be able to sustain a reasonable level of appreciation in the future. The issue of the RMB exchange rate is a matter of China's monetary sovereignty. The appreciation is bringing about heavy pressure on China's export enterprises. Accordingly, the room to appreciate should be based on China's assessment and judgment on the current situation. In a sense, China's enterprises face enormous pressure to make profits while trying to mitigate a severe unemployment situation, which has objectively restrained the government from appreciating the RMB in the wake of the yen's appreciation. A gradual and controlled appreciation in 2005 was key to upgrading the industrial structure of China's exports. To balance bilateral trade, many choices exist other than currency appreciation. For example, boosting product price by factor price (salaries and other costs) would not only expand China's import demands, but also eliminate its outdated production capacity and reduce the export scale of low efficiency products.

    Cooperation in the field of new energy

    Every country is anxious about energy security as oil prices keep rising and oil regions experience social turbulence, besides which, climate change and environmental pollution are propelling the development of green energy the world over. Being major energy consumers, China and the U.S. share extensive common interests.

    On Obama's visit to China in 2009, the two nations agreed to work together in research and development of new energy. Though China's fast-growing market in new energy provides favorable opportunities for bilateral cooperation in this field, there are many obstacles to cooperation. In 2010, the United States carried out a number of anti-dumping measures against Chinese new energy products. Clearly, more vigorous efforts need to be made to enhance mutual trust of the two sides.

    S&ED may also discuss the issue of management competition so as to avoid descent into a global zero-sum game.

    Both nations have their hopes riding on the dialogue.