China Trade Rift Persists After U.S. Talks


May 24, 2007: Chinese Vice Premier Wu Yi laughs during remarks by US Treasury Secretary Henry Paulson at the Capitol Hilton in Washington, DC. Photo: AFP/Tim Sloan

Recent U.S.-China economic talks revealed differences in views but have done little to ease trade tensions, analysts say.

In their second round of “Strategic Economic Dialogue” talks, held in Washington on May 23-24, U.S. and Chinese officials announced a series of agreements, though none signalled a breakthrough on trade issues.

A large Chinese delegation led by Vice Premier Wu Yi offered market-opening moves on air travel and investment, but U.S. Treasury Secretary Henry Paulson called the changes “incremental.”

Washington is waiting for a more substantial move on its key economic concern with China—a change in the value of China’s currency, the renminbi , or yuan .

The Chinese leadership seems to have the view that if we make specific agreements in specific areas, then we move the ball down the field. And from our perception that’s not what the Strategic Economic Dialogue is about.

“One of the issues that I emphasized to Madam Wu Yi, as well as the delegation, was that we’re watching very carefully as to whether or not they will appreciate their currency,” President George W. Bush said.

U.S. lawmakers have argued that China keeps the yuan undervalued by as much as 40 percent against the dollar so that it can sell goods more cheaply abroad, driving its trade surplus with the United States to a record U.S. $232.5 billion last year.

Rise in value of currency?

In an interview with Radio Free Asia, Frank Vargo—a spokesman for the Washington-based National Association of Manufacturers—said that Beijing appears to believe that individual deals can make up for the lack of progress on the currency issue.

“The Chinese leadership seems to have the view that if we make specific agreements in specific areas, then we move the ball down the field. And from our perception that’s not what the Strategic Economic Dialogue is about,” Vargo said.

“It is about changing the fundamental structure of the economic relationship and changing the fundamental structure of the Chinese economy away from export-led growth to domestic-led growth. So in that sense, I think the perceptions on the two sides are different.”

Vargo said he is encouraged by the fact that the value of China’s currency has recently begun to rise.

“If you look at the last, say, four weeks, the Chinese renminbi has appreciated against the dollar at an annual rate of 12 percent. That’s a significantly more rapid rate of increase than in the past.”

“If that were to continue,” Vargo added, “I think that would take a fair amount of heat out of the process that might lead to some rather virulent legislation.”

But Vargo said that the latest rate of appreciation may have been meant only to show an encouraging sign in time for the talks. If the rate slows down again, Vargo said, Congress is likely to speed up consideration of trade penalties against China.

“If that currency suddenly goes flat, stops moving, people are going to say, ‘That was just window-dressing. They’re gaming us. That was just for the Strategic Economic Dialogue. They don’t really have plans to revalue at all.’”

Decisions made in advance

Gary Hufbauer, senior fellow at the Peter G. Peterson Institute for International Economics in Washington, said that the recent U.S.-China talks were not really negotiations, since all decisions had been made in advance.

The Chinese “did not come prepared to negotiate,” Hufbauer said.

“In the first place, the vice premier, Wu Yi, does not have the authority within China on the key financial issues … So clearly, they were not sending over someone who could really change the decisions already made in Beijing.”

Hufbauer said that substantial movement on key trade issues may be delayed in Beijing at least until July and that Congressional action on trade penalties may also take that long.

“I think the [Chinese] leadership does not want to be seen as making a lot of concessions just prior to the Party Congress. But after the Party Congress, where new leadership will be chosen, maybe there will be more flexibility right down to the wire as [discussion in Congress] mounts up.”

Real negotiations on U.S.-China trade issues are unlikely to take place at big public events like the Strategic Economic Dialogue talks, and will occur “behind the scenes,” Hufbauer said.

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


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