China blasts U.S. over trade protectionism

-- Beijing politely rolled out the red carpet this week as two leading U.S. senators began a fact-finding mission to determine how to punish China for manipulating its currency. But half a world away in Geneva, China's delegate to the World Trade Organization lobbed a rhetorical bomb at the United States, accusing Washington of hyping national security concerns to restrict foreign investment on its home turf.

"By interpreting and applying WTO national security clauses in an excessive way, [the United States] has again seriously undermined the credibility of the multilateral trade regime, over which China is highly concerned," Chinese WTO envoy Sun Zhenyu told his fellow ambassadors yesterday.

The comments appeared to be directed at U.S. political backlash that helped kill a bid last year by China's CNOOC Ltd. to acquire Unocal Corp., a Houston-based U.S. oil and gas producer.

"Recently the United States exerted pressure and imposed restrictions on inward [foreign direct investment] on account of national security, which prevent foreign companies from seeking mergers and acquisitions [there]," Mr. Sun added.

The verbal attack, which coincides with the release of a WTO report on U.S. trade policy, marks the latest flashpoint of an increasingly strained relationship between the two economic and military giants.

China wasn't alone in warning about rising protectionist tendencies in the United States. In comments filed yesterday with the WTO, the European Union urged the United States to strike "a better balance" between security concerns and avoiding "unnecessary and costly burdens" to legitimate business.

Responding to the criticism, U.S. Trade Representative Rob Portman said the Bush administration is "cognizant of the potential for protectionism in the U.S. and we are actively communicating the real world benefits of trade at home." But he pointed out that United States hardly has a monopoly on anti-trade tactics.

"Economic isolationism . . . is not just a phenomenon in the United States," Mr. Portman said in a statement released in Washington.

The recent furor over the proposed takeover of several East Coast ports by Dubai Ports World of the United Arab Emirates has caused concern that the United States may be turning increasingly inward as it wages a global war on terrorism.

In the United States, critics blame China for stealing U.S. jobs and pushing the trade deficit to record levels by keeping the value of its currency, the yuan, artificially low. Last July, China raised the value of the yuan by 2.1 per cent and introduced a system to gradually move the currency away from its peg to the U.S. dollar. But the currency has barely moved since.

In Beijing, Republican Senator Lindsey Graham said the next couple of months could be a defining period in U.S.-China relations.

"Our goal is to let the Chinese government realize that the politics of this issue is about to get out of hand," warned Mr. Graham, co-author of a bill with Democrat Charles Schumer that would slap a 27.5-per-cent tariff on all Chinese imports. He said the senators are stressing to leaders in Beijing that "if you think the relations between our two countries are good, you're misreading the tea leaves back home [in the U.S.]. They're not good, and they're getting worse."

Mr. Graham and Mr. Schumer have said they want to push for a vote on the widely popular legislation as early as this month. The senators were slated to meet yesterday with Zhou Xiaochuan, governor of the People's Bank of China.

The Congressional vote could be the first dust-up in the prelude to next month's U.S. visit by Chinese President Hu Jintao. The White House confirmed yesterday that Mr. Hu would meet U.S. President George W. Bush on April 20.

That's just five days after the U.S. Treasury Department is slated to release a report on whether to officially brand China a currency manipulator -- the first step in imposing sanctions.

Although largely drowned out by the politicians, U.S. business leaders have appealed for calm in the escalating dispute. Caterpillar Inc. chairman Jim Owens warned Congress not to be seduced by tariffs and other retaliatory measures against the Chinese.

Boeing, GM, Caterpillar gain in China

TRADE AND INVESTMENT: While the US is enduring a massive trade deficit with the Middle Kingdom, big American corporations are benefiting from its economic boom

BLOOMBERG , WASHINGTON
Monday, Mar 03, 2003,Page 12
A US$103 billion trade deficit with China that restrained US economic growth last year disguised sales gains for such companies as General Motors Corp, Boeing Co and Caterpillar Inc.

US gross domestic product expanded 2.4 percent last year, the Commerce Department reported Friday. The deficit with China, the most for any country in US history, also contributed to a record US trade gap of US$435 billion with all countries. The excess of imports over exports kept GDP from exceeding 3 percent.

While the deficit has led the US food and textile industries to complain that China must ease protection for its farmers and let its currency strengthen, companies that make automobiles, planes and heavy machinery are experiencing an expanding market in China's developing economy.

"For the next 20 years, our biggest trading partner will be China," said Starr Tavenner, China director for Boeing's commercial aviation division. Chicago-based Boeing, the world's largest aircraft maker, delivered 22 aircraft worth a total US$1.6 billion last year to China, where air travel is increasing.

Two-way trade grew after China, the most populous nation with 1.3 billion potential consumers, joined the WTO in December 2001. Membership committed China to welcome foreign companies as well as more imports.

"The market is huge, and they're importing a lot of capital goods," said Nicholas Lardy, a China specialist at the Brookings Institution, a policy research organization in Washington.

The US has a "very strong" advantage with those products, Lardy said. European rivals such as Airbus and Volkswagen AG are competing for a share of the Chinese market.

The US trade deficit with China widened by US$20 billion last year, the first year of WTO membership, boosted by a 22 percent gain in imports, Commerce reported last week.

Critics said the numbers prove that China gained the advantage from joining the Geneva-based trade arbiter.

"China's anti-market, beggar-thy-neighbor policies have been responsible for throwing hundreds of thousands of US workers out of their jobs," said Cass Johnson, vice president of the American Textile Manufacturers Institute.

His association represents Cone Mills Corp, Dan River Inc. and dozens of other US textile and apparel makers. They complain of low labor costs and an undervalued yuan that give China a price advantage of as much as 40 percent over US manufacturers.

Farm groups have complained to the George W. Bush administration that China's market for soybeans, cotton, wheat and other agricultural goods continues to be protected.

US exports to China nonetheless rose last year, and the 15 percent, US$3 billion gain was the most among the 10 largest buyers of American-made goods. Exports fell to seven of those countries, including Canada, Mexico and Japan. Each of the two other increases, to South Korea and Taiwan, was less than 2 percent.

In contrast with shipments to China, US exports of goods to all countries fell almost 5 percent lat year, amid an economic slowdown in much of the world.

"They're buying more enthusiastically than any of our other trading partners," said Edward Gresser, a US trade official in the Clinton administration, now an analyst at the Progressive Policy Institute, a Democratic-supported group that challenges traditional party positions on trade and other issues.

Auto sales in China rose 62 percent to 1.22 million vehicles last year, according to Automotive Resources Asia, an industry consultant. US auto exports to China rose almost 90 percent, the US Commerce Department said.

GM, Ford Motor Co and Volkswagen, Europe's largest carmaker, are boosting Chinese production to meet demand.

Exports of US engineering and construction machinery to China rose 58 percent last year from the previous year, benefiting companies such as Caterpillar, the world's largest maker of earthmoving equipment.

US sales to China of non-electric engines and motors rose more than 25 percent, sales of specialized manufacturing equipment rose more than a third, and aircraft sales rose 40 percent, the Commerce Department said.

"One year doesn't make a trend, but it's significant," said Bill Reinsch, a former Commerce Department official who now heads the National Foreign Trade Council, an exporters group representing Microsoft Corp, Ford, Citigroup Inc and hundreds of other US companies.

"It suggests the possibility of developing a healthy relationship where we're not necessarily in balance, but where there's some equity on both sides," Reinsch said.

The US remained a magnet for goods last year, and many products from China simply replaced those from other Asian countries, economists say.

Some imports are from US companies, such as auto-parts maker Delphi Corp, which have set up operations in China. Imports by US companies from their Chinese subsidiaries totaled 18 percent of all imports from China in 2001, up from less than 11 percent a decade earlier, Commerce Data show.

Consumer spending, which accounts for more than two-thirds of the US economy, grew 3.1 percent last year after slowing to 2.5 percent growth in 2001, the Commerce Department reported today.

"We have a growing China taking more and more US exports -- that's a very positive thing -- and US consumers benefit from cheaper products imported from China," said Catherine Mann, at the Institute for International Economics, a policy study group.

"We win both selling and buying."

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.