A US-China trade war? Not yet.

Recent get-tough moves by the Bush administration are meant to avert a worse crisis – and to ameliorate Congress's concerns about a growing trade gap.

By , Staff writer

The Bush administration has hardened its posture toward China on the sensitive issue of trade, but the move reflects a tactical shift rather than a fundamental change of strategy.

In recent days, US trade officials have filed formal complaints of copyright violations and imposed penalty tariffs on imports of glossy paper.

More get-tough moves may follow, including continued pressure on China to adjust the value of its currency, the yuan, which many US economists believe is artificially low by design.

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Such moves, however, don't represent a White House pullback from the strategy of open trade with the world – including with a nation that last year exported $233 billion more goods to the US than it bought from America. Rather, analysts say, it reflects changing political realities, notably a new Democratic Congress that will have a say on trade policies for the rest of the Bush presidency.

Other Republican administrations have taken a harder line on trade at times of public concern that imports are threatening US jobs and industries. The question is whether the change will serve to patch up a frayed consensus on the benefits of global commerce.

"It's happening now because [Congress] increasingly intends to fight over control of trade policy," says Fred Bergsten, director of the Peterson Institute for International Economics in Washington. The Bush team is "looking to enhance their credibility."

The new assertiveness could score points for President Bush as he tries to get Congress to renew support, by June 30, for the White House to have "trade promotion authority."

This provision pledges Congress to vote promptly and without amendment on accords to expand trade. Because such trade accords often involve myriad trade-offs among various economic interests, such fast-track authority is crucial to the administration's ability to move forward on trade pacts such as one struck this month with South Korea, or the stalled Doha Round of global talks on trade liberalization.

Preempting an angry Congress

The altered tone toward China is also a preemptive strike.

By demonstrating that his administration is acting on several key tension points with China, Mr. Bush may be able to avoid seeing tough legislation come across his desk this year. Some lawmakers would like to impose trade penalties for alleged currency manipulation, if Beijing is unresponsive to overtures by the US Treasury Department.

"The attempt is to let some air out of the political pressure" in Congress, says Charles McMillion, an economist who tracks China policy at MBG Information Services in Washington.

Political restiveness on China has been growing, however, despite a generally strong US economy with low unemployment.

"I don't think the trade issue is going to go away," Mr. McMillion says. If the economy slows, as some believe it will, "the pressure will only get louder."

American attitudes on globalization can be ambivalent, mindful of both the benefits of falling costs for flat-screen TVs as well as falling employment at Midwest factories.

But in an NBC News/Wall Street Journal poll a month ago, 48 percent of American adults said the nation is "being harmed" by the global economy, versus 25 percent who said the nation was benefiting.

China is the focal point for that concern.

Worries about a soaring gap with China in the trade of manufactured goods helped push a number of Democrats into office as the party retook control of Congress last fall.

The backlash does not, for now, appear strong enough to quickly propel a protectionist agenda. Democrats themselves are divided on trade, with internal jostling now between several camps. But Congress has still sent a message on China.

The business community has added its own fuel to the fire.

Many large corporations are benefiting from operations within China that are very profitable – and have high hopes for China as a key growth market in coming decades. But some businesses have become frustrated in recent months with what they see as a China unresponsive to US trade complaints regarding subsidies, copyright violations, and an undervalued currency.

The National Association of Manufacturers, which represents a panoply of industrial corporations, has welcomed the Bush administration's recent actions.

"We certainly hope the Chinese will recognize the importance of these issues and begin to become more compliant with World Trade Organization standards," says J.P. Fielder, a Washington spokesman for the group.

At the same time, the group applauds the effort to approach the currency issue through constructive dialogue by Treasury Secretary Henry Paulson, a former investment banker with close ties to many Chinese leaders.

End of a quiet stretch in China ties

While the Bush administration has pursued these issues for years, the recent steps come after a quiet stretch in US-China ties, during which Secretary Paulson has emphasized long-term discussions, not immediate disputes.

On April 9, US Trade Representative Susan Schwab requested that the World Trade Organization consider "China's inadequate protection of copyrights and trademarks" and asked for the WTO to also examine "serious … market barriers" to the sale of US movies, music, and publications in China.

On March 30, the Commerce Department imposed penalty tariffs on glossy paper made in China, the first time such "countervailing duties" have been imposed on a nation classified as a nonmarket economy. The step, responding to a complaint by a Dayton, Ohio, paper company, could open the door to such penalties on other products from China.

"You could see a lot of countervailing duty cases," says Harald Malmgren, a Washington area trade expert.

Trade and other GOP presidents

The shifting Bush trade winds aren't unprecedented. In the mid-1980s, President Ronald Reagan changed Treasury chiefs amid rising concern about trade deficits. Under Secretary James Baker, the administration encouraged a weaker dollar and a tougher policy toward Japan, Dr. Bergsten says. Earlier, protectionist sentiment prompted President Nixon to impose import surcharges and helped to delink the dollar from gold.

It would be unfortunate for the US to focus its trade policy too narrowly on issues of currency and WTO disputes, some economists say. China – a major engine of the global economy – now stands at a delicate point, with its leaders recognizing the need to rely less on exports.

The bigger problem for the US is a low savings rate, says Stephen Roach, an economist at Morgan Stanley. When savings at home fall short of investment – in part because of big US budget deficits – the result is almost guaranteed to be a large trade deficit, he told a Senate panel.

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