U.S. trade deficit with China drops right ahead of Chinese president's visit

WASHINGTON -- The Chinese are engaged in a multibillion-dollar buying spree of all things American, from soybeans to Boeing jetliners, and the huge U.S. trade deficit with China dropped unexpectedly in February.

But the Bush administration said Wednesday that more trade concessions will be needed when President Hu Jintao visits Washington next week to quiet growing unrest in this country over a U.S. trade deficit with China that hit $202 billion last year.

That deficit, the highest ever for the U.S. with a single country, has led to demands in Congress for punitive tariffs against all Chinese products if Beijing does not do more to halt what critics see as the country's unfair trading practices.

The complaints include accusations that China has not done enough to deal with rampant piracy of copyright products. This practice robs American computer software companies and music and movie businesses of billions of dollars in annual sales.

American manufacturers also are upset because they believe China is unfairly depressing the value of its currency against the dollar by as much as 40 percent. Thus, Chinese goods bought by American consumers are significantly cheaper in the United States while American products are more expensive in China.

The trade deficit with China represented more than one-fourth of last year's record $723.6 billion U.S. deficit with all countries. Critics say the deficits are a major factor in the loss of nearly 3 million manufacturing jobs since President Bush took office in 2001.

Republicans, strong supporters of Bush's free-trade policies, are beginning to worry they could suffer in the upcoming congressional elections unless the trade picture begins to improve.

The Chinese, seeking to placate their biggest foreign market, dispatched Vice Premier Wu Yi and 200 Chinese business executives on a $16.2 billion buying spree over the past week with stops in a number of states to demonstrate the importance of the vast Chinese market for American companies.

The purchases included 80 Boeing jetliners and various other U.S. products, from telephones to soybeans and software.

Wu continued the goodwill campaign during a stop in Washington on Tuesday where she struck agreements to deal with some long-simmering trade disputes. She announced that China was ready to resume purchases of American beef that were halted after the first case of mad cow disease was discovered in Washington state in December 2003.

She made commitments to crack down on copyright piracy, including requiring all computers sold in China to be loaded with legal software.

The administration invited Wu to the White House on Wednesday for a meeting with Bush. The president told her that he was looking forward to next week's meetings and hoped the Chinese president would "explain to the American people how China will meet the challenge of rectifying global economic imbalances," White House spokesman Scott McClellan told reporters.

That conversation followed Bush's remarks Monday that he planned to raise the currency issue with Hu. His comment has raised hopes among manufacturing groups that the Chinese may be preparing to move more further in revaluing their currency.

The White House got some good news on America's deficit with China with a report Wednesday showing the trade gap declined by a bigger-than-expected 22.7 percent in February, falling to $13.8 billion, the smallest imbalance with China since March 2005.

The improvement reflected a 19.9 percent jump in U.S. exports to China to $4.1 billion, the second highest level on record, led by big gains in sales of American cotton, soybeans and semiconductors. Chinese imports fell by 16.2 percent to $17.9 billion.

On Wall Street, the Dow Jones industrial average rose 40.34 points to close at 11,129.97 on Wednesday.

Analysts noted that China has reported that its trade surplus for March was more than double the amount for the previous year, indicating that its exports to the United States probably rebounded as well.

Democratic critics noted that even with the big February decline in the gap with China, the overall trade deficit still came in at $65.7 billion, the third highest monthly deficit in history.

"The fundamental problems brought about by flawed and failed trade policies continue to create huge trade deficits and the potential for real economic difficulties if we don't turn them around," said Sen. Byron Dorgan, D-N.D.

Even a Republican supporter of trade liberalization warned China on Wednesday that it must start to show results in boosting U.S. exports to ward off protectionist sentiment in Congress.

"Lofty statements coming from a meeting don't mean a thing if there isn't follow-through," said Senate Finance Committee Chairman Charles Grassley, R-Iowa.

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On the Net:

U.S. Trade Representative: http://www.ustr.gov

White House: http://www.whitehouse.gov

Commerce Department: http://www.commerce.gov