China gets blame for part of American economic woes

Tuesday, October 14, 2003

WASHINGTON -- China has Washington seeing red over trade.

Chinese exports to the United States have tripled since 1995, with U.S. consumers snapping up clothes, shoes, toys and electronics. For every $6 in products that China sells here, U.S. companies sell $1 to China.

That has contributed to a hemorrhaging of U.S. manufacturing jobs and a skyrocketing trade deficit with China.

To gain a trade advantage, China has manipulated its currency and reneged on commitments made when it joined the World Trade Organization in 2001, the Bush administration and Congress contend.

It's an issue expected to be on the table when President Bush meets next week with Chinese President Hu Jintao on the sidelines of the Asia Pacific Economic Cooperation forum in Bangkok, Thailand. On Capitol Hill, meanwhile, lawmakers are considering retaliatory tariffs.

$103 billion

Last year, the trade imbalance with China was $103 billion, the largest ever recorded by the United States with any country. And so far this year the gap is 22 percent above last year's pace.

Bush sent Treasury Secretary John Snow to Beijing last month to urge the government to stop pegging China's currency, the yuan, to the dollar at a fixed rate. The Chinese rejected Snow's request, but the administration says it will keep up the pressure.

The moves at the White House and in Congress come amid fears of a voter backlash in 2004, in part because of the loss of 2.7 million factory jobs over the past 39 months.

American manufacturers contend the Chinese are keeping the value of the yuan artificially low to give Chinese products an unfair price advantage of as much as 40 percent. An undervalued yuan makes Chinese imports cheaper for American consumers while making U.S. products more expensive in China's market.

Bush recently told U.S. business leaders that his administration "plans to make sure that China's got a monetary policy which is fair."

The administration also complains that China is not moving fast enough to honor commitments made when joining the WTO.

They include lowering trade barriers against American manufactured goods and farm products and allowing U.S. banks, telecommunications companies and other service industries to compete for business in China's vast market.

Commerce Secretary Don Evans last month formed a new Unfair Trade Practices Team to make sure that China lives up to its WTO commitments.

In Congress, more than 60 House members are sponsoring a bill that would penalize Chinese products by an amount equal to that which the Treasury Department determines China's currency is being undervalued. A bipartisan group of senators is pushing a separate bill to impose a 27.5 percent tariff on Chinese products.

'Anti-free market'

"We simply cannot allow countries like China to continue their illegal, anti-free market trade policies," said Rep. Mark Green, R-Wis., a sponsor of the House bill.

House Ways and Means Committee Chairman Bill Thomas, R-Calif., has scheduled hearings this week to spotlight complaints against China. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, says Chinese leaders need to know that "there's a lot of pressure in Congress and the administration to take action."

Nonetheless, many economists believe it could be years before China allows the yuan to appreciate. They cite heavy dependence on exports. It is not just Chinese companies who benefit: 10 of China's 40 top exporters are U.S. companies with factories in China.

"Getting China to change its currency system will be a long and difficult struggle," said Greg Mastel, chief international trade adviser for the Washington law firm Miller & Chevalier.

But other analysts argue that China no longer has the luxury to rig its currency system. They point to growing political pressure stemming from America's huge overall trade deficit, now running at an annual rate of $433 billion.

"Hopefully, China will change its mind and see that some kind of revaluation would be better than the alternatives," said Morris Goldstein, senior economist at the Institute for International Economics in Washington. "Pressure for trade protectionism is certain to grow in this country with an election approaching."

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