- The Washington Times - Wednesday, November 5, 2003

Does the Bush administration see the rising trade deficit with China, and the transfer of production capacity and jobs across the Pacific which it measures, as an international economic problem to be remedied or merely a domestic political problem to be finessed?

In September, Treasury Secretary John Snow journeyed to China to urge Beijing to let its currency fluctuate in a wider band, but came back empty-handed. As Commerce Minister Lu Fuyuan has said, China’s exchange policy will be “determined first and foremost based on China’s own domestic economic needs.” Given the benefits China is reaping from the current situation, there is no internal pressure to change.

Mr. Snow says he prefers “quiet diplomacy” but he became virtually mute when, by using a very narrow methodology, he reported to the Senate Banking Committee Oct. 30 that China is not violating any laws regarding manipulation of currencies for competitive advantage. Interestingly, John B. Taylor, undersecretary of Treasury for international affairs, told the House Ways and Means Committee the same day that China’s “central bank has intervened very heavily in the markets to prevent the yuan from appreciating.”

In late October, U.S. Commerce Secretary Don Evans met with Chinese Premier Wen Jiabao in Beijing. “We received a strong commitment from him to closing that [trade] gap,” Mr. Evans told reporters, but no targets were set by which progress — or Chinese sincerity, could be measured. The history of trade negotiations is clear on this point: If no goals are set, no movement takes place. But then, the administration prefers to think of talks with China as a “dialogue” rather than “negotiations.”

The trade deficit with China is expected to reach $130 billion this year. The U.S.-China gap swelled to a record one-month total of $11.7 billion in August, a third of the overall U.S. trade shortfall.

Beijing will not help Washington solve its international economic problem, because it is part of China’s drive to become the strongest economy in Asia and to overturn the global balance of power that currently favors the United States. It is, however, willing to help the Bush administration dampen the political unrest that might force a change in an American policy that is so helpful to Chinese development.

Beijing is expected to soon announce the purchase of billions of dollars worth of American goods, mainly commercial airplanes, jet engines and auto parts. The announcements will likely be timed to build good will ahead of Premier Wen’s planned visit to Washington in early December.

These staged purchases will not, however, change the underlying pattern of trade. It should be remembered that during the negotiations leading to U.S. approval of China’s accession to the World Trade Organization, Beijing made some much heralded purchases of American grain to foster the illusion China would be a big emerging market for American farmers. Once the WTO talks were over, so were China’s elevated imports.

Beijing has never wavered from its official policy of “national self-sufficiency” in agriculture, nor is it going to abandon the pursuit of “comprehensive national power” through industry and trade.

The agitation against Chinese trade depredations is centered in Congress as elected representatives feel the heat from back home as factories close and nearly 3 million manufacturing jobs have disappeared, spreading economic woe across entire states. Senate and House committees have held hearings on China and more are in the offing.

A bipartisan group of moderate senators has cosponsored legislation (S.1586) to impose countervailing duties on Chinese imports across the board. In a flood of letters on Oct. 29, 139 House members and 26 senators urged President Bush to immediately apply safeguard quotas to imports of Chinese textiles. On that same day, the House voted 411-to-1 in favor of a resolution by Rep. Phil English, Pennsylvania Republican, calling on China to fulfill its commitments under international trade agreements and to end its currency manipulation. It also called on the Bush administration to take action to support the U.S. manufacturing sector.

China has used two gambits to counteract political pressure in the past. The most obvious is to mobilize those American firms that have invested in China and thus benefit from Beijing’s mercantilism. These large transnational corporations deploy an army of well-financed lobbyists with direct access to the administration and congressional leaders. Yet, the very fact they have thrown in their lot with a foreign power should diminish their credibility.

Beijing’s second gambit is to renew calls for a relaxation of import restrictions on sensitive technology, especially technology with military application, as the way to boost American exports. China has long chafed under security restrictions and has circumvented them whenever possible, often with the aid of the same avaricious American firms who lobby on Beijing’s behalf. All China really wants from the United States is technology, and the capital and know-how needed to replicate it. Opening the gates to Beijing in strategic trade might narrow the deficit somewhat in the short run, but in the long run the adverse impact on both U.S. competitiveness and national security would be catastrophic.

Congress should continue to move legislation forward dealing with the consequences to American prosperity and security from the current adverse trade pattern with China. The sincerity of the administration’s approach to Beijing must be tested, so the public can decide whether the White House is taking the problem seriously.

William R. Hawkins is senior fellow for national security studies at the U.S. Business and Industry Council.

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