Trade Bill Targets China

2007-03-21
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March 2, 2006: Former House Armed Services Committee Chairman Duncan Hunter (R-CA). Photo: AFP/Tim Sloan

U.S. lawmakers are turning up the pressure for sanctions against China amid signs that Washington’s diplomatic efforts to reduce trade deficits have failed.

On March 7, a bipartisan group of senators introduced legislation that would allow U.S. companies to seek higher duties on Chinese imports directly through the World Trade Organization (WTO) if Beijing continues to set an artificially low value on its currency.

Under the “Fair Currency Act of 2007,” the United States would be able to define “exchange rate misalignment” as an export subsidy prohibited by the WTO, allowing companies to seek relief through offsetting duties on Chinese goods.

Companion legislation was introduced in January in the House by Democratic Representative Tim Ryan of Ohio with backing from 32 co-sponsors, including presidential candidate Duncan Hunter, a California Republican.

In interviews with Radio Free Asia, economic and political analysts said that a combination of Democratic control of the U.S. Congress and the prospect of presidential elections in 2008 is raising pressure for action on the trade deficit with China, which hit U.S. $232.5 billion last year.

We’re in kind of a populist mood right now, the sense that if China’s going to be a serious player on the international stage in economic terms, it can’t just operate in the mercantilistic fashion to its own advantage.

A ‘populist mood’

Norman Ornstein, a congressional expert at the Washington-based American Enterprise Institute for Public Policy Research, said lawmakers have grown impatient with the Bush administration’s reluctance to cite China for currency manipulation.

“We’re in kind of a populist mood right now, the sense that if China’s going to be a serious player on the international stage in economic terms, it can’t just operate in the mercantilistic fashion to its own advantage,” Ornstein said.

“All of those sentiments are there in Congress.”

But Ornstein said that congressional moves could also be aimed at bolstering the Bush administration’s diplomatic efforts with China while holding out the possibility that they could turn into real threats if negotiations fail.

“It’s easier to have diplomatic leverage over a country if an administration can say, ‘Please work with us on this, because I’ve got a mad dog straining against the leash who could do enormous damage unless we can work it out.’”

Ornstein said it is unclear whether measures allowing U.S. companies to go directly to the WTO would pass legal tests. In the meantime, he said, China could be tied up in trade disputes for years.

China could prevail

Gary Hufbauer, senior fellow at the Peter G. Peterson Institute for International Economics in Washington, said that growing congressional support for trade bills aimed at China makes it likely that “some China penalty legislation will emerge out of this Congress later on in the year.”

Hufbauer said that China could ultimately prevail in a legal fight before the WTO on whether U.S. companies can define China’s currency rate as a subsidy.

“But it would take the WTO at least three years to make a final decision on this. And, of course, some penalties would be out there, and people would be getting hot under the collar.”

Hufbauer also noted the significance of China trade disputes to Representative Hunter’s presidential bid.

“His campaign is based in very large part on criticizing China, both on commercial grounds—that’s the trade side—and as a rising military power. So if you can get a person running for president on this platform as well as these senators putting in these bills, that does suggest a groundswell of dissatisfaction.”

Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney.

Original reporting in Chinese

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