No Respite Seen in Trade Spat

Trade pressures on China will persist after U.S. elections, analysts say.
By Michael Lelyveld
2010-10-25
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A visitor tries an electric compact car at a green technology fair in Beijing, July 16, 2010.
A visitor tries an electric compact car at a green technology fair in Beijing, July 16, 2010.
AFP

Trade experts see little chance that frictions with China will ease after U.S. elections in November.

Following a U.S. decision to investigate China's support for trade in green technologies, a top Chinese official charged that politics was the driving force behind the probe.

"Do they want fair trade, a normal dialogue or transparent information?" asked Zhang Guobao, vice minister of the National Development and Reform Commission (NDRC) at a Beijing press conference on Oct. 17.

"Judging from the procedures, I believe (politicians of) the United States are more willing to get votes," said Zhang, according to the official Xinhua news agency.

But analysts say the push for trade measures has a long trail that is likely to continue long after the Nov. 2 congressional vote.

"I think it's an election year thing, but it's going to go on past the election," said David Bachman, professor of international studies at the University of Washington in Seattle.

"It will partly depend on the makeup of the new Congress, but I think the level of frustration with China on these issues is just growing, growing, and growing," Bachman said.

In the latest dispute, U.S. Trade Representative Ron Kirk opened an investigation in response to a petition from the United Steelworkers union alleging that China unfairly subsidizes products such as solar panels and wind power turbines.

"Green technology will be an engine for the jobs of the future, and this administration is committed to ensuring a level playing field for American workers, businesses, and green technology entrepreneurs," Kirk said in a statement.

The union's 5,800-page petition charges that China uses a series of trade preferences, subsidies, and investment protections to support its clean energy industries.

Under Section 301 of the 1974 U.S. trade law, acceptance of the petition could lead to consultations with China and an eventual complaint to the World Trade Organization.

"Enough is enough. China needs to start playing by the rules they agreed to when they joined the WTO," said Leo Gerard, the steelworkers' international president, in a union release.

Rare earth dominance

A key concern is China's dominance over supplies of rare earth elements, a class of materials used in products including solar cells, hybrid cars, and compact fluorescent bulbs.

The United States and Japan are reportedly considering complaints to the WTO over China's restrictions on rare earth exports.

The issue emerged when China stopped shipments of the elements to Japan during their recent frictions over disputed islands in the East China Sea. China, which controls over 90 percent of rare earth supplies, argues that limits are needed to conserve the materials.

On Oct. 19, the official English-language China Daily quoted a Ministry of Commerce official as saying the country would cut its export quotas by up to 30 percent next year.

One day later, the ministry rejected the report as "groundless," but The New York Times reported that China has halted some shipments of the materials to the United States and Europe, as well as Japan.

"They'd like to declare that our petition is protectionist, yet they are the most protectionist country in the WTO," said Steelworkers spokesman Gary Hubbard in a phone interview, citing a host of disputes.

The union cites estimates by the Washington-based Economic Policy Institute that the trade deficit with China led to the loss of 2.4 million U.S. jobs between 2001 and 2008.

The Steelworkers have been party to a series of petitions and complaints against China since 2007, dealing with products including tires, paper, and steel pipes.

While subsidies like state bank loans and export rebates have figured in the cases against lower-priced Chinese goods, the issue of currency valuation has been a major source of the complaints.

U.S. economists have argued for years that China deliberately undervalues the yuan by 25 to 40 percent to gain an unfair price advantage for its exports.

In September, the U.S. House voted 348-79 for a bill that could lead to tariffs against countries with "misaligned" currencies. Ninety-nine Republicans joined 249 Democrats in supporting the measure.

'Enormous frustration in Congress'

The bipartisan backing may undercut China's argument that the trade cases are election year measures.

"There is enormous frustration in Congress and in Washington in both parties at the lack of progress on this issue," said Patricia Mears, director of international economic affairs policy at the National Association of Manufacturers.

Mears recognizes a political element in some of the support for taking action, but she also notes that trade disputes with China have been on the agenda for years.

"These issues have been chronic problems. Many of the things that are being looked at now are not new complaints," she said.

Mears said that issues like rare earth exports have been "ramped up" recently because of China's new restrictions, but that the cases will continue after the election.

"They're not going away until they're resolved," she said.

A separate question is whether the push for new trade cases will ease if China moves to revalue the yuan.

On the same day that the USTR opened its investigation, U.S. Treasury Secretary Timothy Geithner announced he would postpone a required report to Congress that could cite China for currency manipulation.

The move suggested efforts to take the sting out of the trade conflict and give diplomacy more time to work.

On Sunday, Geithner met with Chinese Vice Premier Wang Qishan in the eastern port city of Qingdao following a two-day finance ministers' meeting of the Group of 20 nations in Gyeongju, South Korea.

In a statement, the Treasury Department said only that the two sides exchanged views on economic relations and preparations for the upcoming G20 summit in Seoul.

But advocates and experts say that sectoral complaints about China's trade practices are unlikely to end, even if it implements currency reform.

"(They will) probably continue because many of those practices that we are complaining about in petitions ... are in violation of (WTO) standards," said Hubbard. But he added that "currency manipulation is the overall biggest violation of WTO protocols that China agreed to."

Bachman said U.S. interests will still have competitive problems with China's subsidies, whether or not it revalues the yuan.

"U.S. producers and workers will continue to raise that issue," he said.

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