China likely next target in pressure for tariffs

Monday, December 8, 2003

WASHINGTON -- Many economic analysts believe that China will be the Bush administration's next big target for a trade battle.

Trade is certain to be on the agenda Tuesday when Bush welcomes Chinese Premier Wen Jiabao to the White House on his first trip to the United States since taking office in May.

The U.S. trade deficit with China was $103 billion last year and is headed for $120 billion or higher this year, the largest imbalances ever recorded with any country.

The administration put quotas on certain Chinese textiles and apparel last month and is threatening to levy duties on Chinese television sets. Disputes over Chinese furniture and barriers to American soybean sales in China are probable.

Bush and Treasury Secretary John Snow have lobbied Chinese leaders to stop pegging the value of the Chinese currency to the U.S. dollar. U.S. manufacturers contend that practice gives Chinese goods as much as a 40 percent advantage over American products.

Members of Congress are threatening across-the-board tariffs on Chinese goods as punishment for China's currency policy.

Talk of increasing trade barriers led Federal Reserve chairman Alan Greenspan to warn recently: "It is imperative that creeping protectionism be thwarted and reversed."

While economists are big fans of reducing trade barriers as the best way to achieve maximum global growth rates, they agree that such economic principles are a tough political sell during hard times.

"Economists are opposed to any kind of trade restrictions," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis, "but political reality often forces compromises."

Analysts say that the more careful selection of trade battles may be linked to the Bush administration's hasty turnabout over steel tariffs.

They said Bush wanted to honor a 2000 campaign pledge to the domestic industry, and the tariffs were imposed despite overwhelming evidence they could not survive a challenge from the World Trade Organization.

Trade analysts also said Bush leveraged the trade penalties on steel into congressional passage of legislation that gave the president power to negotiate new trade agreements, including one that would create a hemisphere-wide free trade zone.

Bush has resorted to selected protectionism while espousing allegiance to free trade. In doing so, he is using the same tactics as many of his predecessors, seeking to win votes for free trade by offering measured doses of protecting industry.

"The whole history of free trade is littered with squalid little side deals that provide favored industries with protectionism," said Brink Lindsey, a trade economist at Cato Institute, a Washington think tank.

"But I don't think this administration realized the black eye it was going to receive over the steel issue."

The steel case put a variety of U.S. producers, from citrus farmers in Florida to nut growers in California, at risk of retaliatory tariffs from Europe. It also angered steel-consuming U.S. industries that suddenly had to pay more because of the tariffs on incoming steel.

Given those factors, Bush decided to cut his losses. He will face a political backlash from the steel industry, a critical force in Pennsylvania, West Virginia and Ohio, but the decision appeases a larger collection of states upset by the tariffs.

The government announced Friday that even though the overall unemployment rate dropped to 5.9 percent in November, manufacturers suffered a 40th consecutive month of job losses.

During the past three years, 2.8 million factory jobs -- one in six -- have disappeared. That has raised fears that many of those jobs may be lost forever to overseas factories where labor costs much less.

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