US faces limited options in China trade fight
Updated: 2006-02-20 08:45
Reminiscent of 1980s Japan-bashing, Washington is revving up criticism of
China to rectify a burgeoning trade deficit, but its options are limited and any
retaliatory actions could backfire, analysts say.
To appease constituents facing job losses in America's industrial heartlands,
US lawmakers have proposed legislation to downgrade trade relations with China
and impose punitive tariffs on Chinese goods flooding the United States.
The Bush administration, in an unprecedented move last week, announced the
setting up of a task force that will specifically monitor China's compliance
with its global trade obligations.
They include Beijing's enforcement of intellectual property rights, freeing
up certain domestic industries and fulfilling market-opening commitments -- all
of which were blamed for fuelling the record US trade deficit with China of more
than 200 billion dollars.
Another reason cited was alleged Chinese government action to keep its yuan
currency artificially weak to boost exports.
Speculation is mounting that the administration is considering branding China
a currency manipulator in April, when Chinese President Hu Jintao is scheduled
to visit Washington for talks with President George W. Bush.
The US Treasury Department is reportedly sounding out investors and experts
about how financial markets might react to such a move.
Under a 1988 law, the Treasury is required to consider twice a year whether
countries are pursuing exchange-rate policies "for the purposes of preventing
effective balance of payments adjustments or gaining unfair competitive
advantage in international trade."
The United States is the only country that has taken China to the WTO on a
trade dispute since the world's most populous nation gained entry in the global
trade body in 2001.
Washington also has filed more antidumping suits against Chinese products
than against any other country in the world.
It is not the first time that a competing country has caused economic unease
in the United States. In the 1980's, the United States was concerned over
Japan's economic success, leading to actions that helped spark a stunning
revival of American productivity.
"I think there are some comparisons, actually, and I think it's instructive
for us to look back at the '80s and look at where we are," acknowledged US Trade
Representative Rob Portman (news, bio, voting record), who was then attached to
the White House.
"There was a concern that we just could not compete and win against Japan, no
matter what. Look what's happened. You had a high technology revolution in this
country following that. It was an essential wakeup call.
"My sense is that's where we are again, in a sense," said Portman.
But when Portman last week declared in a "top-to-bottom review" of China's
trade practices that Washington would toughen its stance on Beijing's trade
practices by setting up the task force, Congress was little impressed.
"It is amazing that in a comprehensive 29 page report, the Trade
Representative fails to mention the 800 pound gorilla in the room -- how China
manipulates its currency," said Democratic Senator Chuck Schumer.
His legislation seeking punitive tariffs on Chinese goods unless the yuan
strengthens is due for another Congressional vote this spring.
Such moves may backfire and ignore other important issues, officials and
"The sad fact is we don't necessarily have much leverage to get China to
change their exchange rate or their trade policies," said Nicholas Lardy, a
China expert at the US based Institute of International Economics.
Even so, he said, the Chinese market "is pretty open," citing the more than
150 percent jump in US exports to China over the last five years.
China, he argued, also is in compliance with most of its WTO obligations.
"Sometimes they were a little bit slow but they've pretty much done everything,"
On the foreign exchange front, a strong upward revaluation of the yuan could
be counterproductive to US trade and monetary interests, warned Robert Burdekin,
an economics professor at Claremont McKenna College in California.
"An exchange rate reduction could pose considerable financial risk to the
United States by threatening the vast inflow of Chinese funds," he said, adding
that Chinese capital provided critical support to the US trade deficit as well
as the level of US interest rates.
China's reserves' accumulation of US bonds was 207 billion dollars in 2004
and total holdings were roughly 616 billion dollars, Burdekin noted.
Discouraging Chinese imports could also boomerang. "It would likely benefit
(other) foreign producers who would then assume the supplier role, not US
firms," he said.
Even where China is seen to be not complying with WTO rules, most notably
intellectual property rights, private US firms are not very excited about
cooperating with the authorities in hauling China to the WTO.
Portman himself acknowledged this.
"There are some US industries that have been hesitant to move forward on some
enforcement actions. For many companies (China is) a profitable market. In some
cases their most profitable market," he explained.
"So it is a reality that sometimes I find that we're a little ahead of our