How to tackle trade deficit with China
Bush and Congress are divided as Chinese and US officials hold talks this week in Washington.
from the May 22, 2007 edition
Page 2 of 3
"The win-win nature of this [trade] relationship is amply demonstrated by the rapid growth of bilateral trade," Vice Premier Wu wrote last week in The Wall Street Journal.
But while this week's talks represent the goal of long-term engagement, short-term tensions are bound to be a focus as well.
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Speaking to students at the Harvard Business School in Boston earlier this month, Secretary Paulson acknowledged that the "strategic economic dialogue," launched by both nations last year, faces pressure. "If you don't get some short-term results, you'll never get to the long term," he said.
Several issues are of central concern. One is the protection of intellectual property, everything from patents to copyrights on music and movies. Another is alleged subsidies in violation of US trade statutes. The value of the yuan looms the largest for many China critics, because it affects the terms of trade across all categories of goods.
Last week, China agreed to allow its currency to fluctuate within a wider band of values, but said this did not necessarily mean the currency would be allowed to rise significantly.
Sen. Charles Schumer (D) of New York was quick to voice skepticism about the move. "This is a nice gesture, but in the past, most of their gestures have not produced any concrete change," he said in a statement. "The Chinese should recognize that they face the prospect of strong WTO-compliant legislation if there isn't significant progress."
Any countervailing measures against China, designed to punish and deter unfair trade practices, must be able to pass muster with the World Trade Organization, the ultimate arbiter for its 150 member nations.
A higher yuan, over time, could be difficult for the US economy. Chinese imports would cost more for US consumers. Economists say that other Asian nations would probably allow their currencies to float higher as well. That could push up inflation.
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