A US-China trade war? Not yet.

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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