Fight brews over fixing US foreign-trade imbalance

China exports six times as much to the United States as the US exports to China.

And it is not just toys and clothing: China ships seven times as many computer parts to the US as vice versa.

"China is becoming quite a powerhouse in technological products," notes Charles McMillion, a Washington trade expert.

The $85 billion US trade deficit with China is just part of the story. The US has deficits with many nations, including its neighbors, Canada and Mexico. Last year, the total US trade deficit in goods fell just short of $450 billion, a record.

What's to be done about it, if anything?

Weaken the dollar, suggests Frank Vargo, trade specialist at the National Association of Manufacturers (NAM) in Washington.

Reduce trade obstacles abroad with a new global-trade round under the World Trade Organization and expand the North American Free Trade Agreement to include Central America, the Caribbean, and South America, Mr. Vargo adds.

At present, two-thirds of US imports come in duty free. The average US tariff is 1.6 percent of the value of the goods.

"That's not a trade barrier," he says. "That's a speed bump."

All of these measures require action in Washington, which may or may not be forthcoming.

Earlier this month, NAM President Jerry Jasinowski and the heads of trade associations representing the Big Three US automakers as well as the forest and paper, aerospace, machine tool, and auto-parts industries wrote Treasury Secretary Paul O'Neill complaining the "overvaluation" of the dollar is slamming manufacturing exports, production, and employment.

Since 1997, the dollar has risen nearly 30 percent on a trade-weighted basis against the currency of US trading partners. Exports of manufactured goods are off $50 billion at an annual rate since last August.

So far, the NAM has heard no response from Mr. O'Neill. For years, he and his predecessors at Treasury have insisted on a "strong dollar" policy. Though a weaker dollar would make exports easier and imports more expensive, a mighty dollar helps keep inflation and wages down.

"It's the best wage-and-price controls the economy could ever have," says Mr. McMillion of MBG Information Services.

And a strong dollar looks good politically.

But both Vargo and McMillion worry that investor sentiment will turn against the dollar and its value plunge greatly and suddenly, disturbing world financial markets.

Without "a more realistic" exchange rate, "we risk an economic tragedy," says Vargo.

What primarily props up the dollar is the purchase by foreigners of American assets. Last year, foreigners paid $321 billion for "direct investments" in the US. Of this sum, 98.6 percent was used to buy existing American companies.

US shareholders of those acquired companies benefit. But the transactions add to the net debtor position of the US. Foreign investments in the US now exceed American investments abroad by $1.5 trillion.

As to the trade deals, Sen. Bob Graham (D) of Florida and Sen. Frank Murkowski (R) of Arkansas last Tuesday introduced a Trade Promotion Authority (TPA) bill. It would permit the Bush administration to negotiate a new WTO round or Free Trade Agreement of the Americas and present it to Congress for an up or down vote without any amendments.

Vargo says chances for passage are "good," if done this year. The prospect in 2002, with an election ahead, is slim. McMillion suspects passage will be difficult to achieve.

Patrick Woodall, research director at Public Citizen Global Trade Watch, an offshoot of Ralph Nader's Washington organization, hopes the bill fails.

TPA is not required, he argues. Chile and Australia are seeking trade deals without it. TPA enables the White House to cut deals that benefit corporations but are "disastrous" for workers, farmers, and the environment, says Mr. Woodall's group.

Investors get various protections. Intellectual property, such as for drugs and movies, gets guaranteed financial rewards.

"But heaven forbid if we talk about labor rights," says Woodall. Or the environment.

Observers figure some recognition of labor rights and the environment will be needed in a TPA bill to get enough Democratic support to push it through the Senate.

Woodall doesn't want another trade deal until the "problems" of the current trade system are corrected. His group was one of those protesting at the WTO ministerial session in Seattle in late 1999.

A study Woodall's group released last week holds that the seven-year-old NAFTA clobbered small farmers in all three nations. It's just one sign of the trade fight brewing in Washington.

(c) Copyright 2001. The Christian Science Monitor

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