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2 Another challenge for China's 'iron
woman' By Jing-dong Yuan
When Chinese Vice Premier Wu Yi arrives in
the US in mid-May, she may find the balmy spring
weather invigorating but the political atmosphere
in Washington glum and foreboding because of
rising trade disputes, the yuan, and rumbles of
protectionism. Though it is not on the agenda,
concerns over China's military spending will also
color the meetings.
She is to attend the
second round of the semi-annual Sino-US Strategic
Economic dialogue. Launched last December, it was
the
most tangible result of an unusually high-powered
visit to Beijing led by US Secretary of the
Treasury Henry Paulson that included, among other
notables, the chairman of the US Federal Reserve,
Ben Bernanke.
As far as Washington is
concerned, the yuan, the Chinese currency, remains
undervalued, even though it has appreciated more
than 7% since Beijing allowed a more flexible
exchange rate two summers ago.
There is no
sign that the US trade deficit with China is
declining. Last year, China sold US$233 billion
more goods to than it took in from the United
States. Piracy and counterfeiting of US movies,
music, and software continue to be a serious
problem: last year alone, the US entertainment
industry claimed more than $2 billion in lost
sales due to rampant piracy.
Indeed,
Washington is hardening its position. On April 9,
US Trade Representative Susan Schwab requested
that the World Trade Organization (WTO) consider
"China's inadequate protection of copyrights and
trademarks" and examine "serious market barriers"
to US sales of movies, music and publications in
China.
On March 30, the US Commerce
Department slapped tariffs on glossy paper made in
China. Congress is likely to introduce legislation
threatening penalties if no tangible results can
be achieved regarding yuan appreciation. Beijing
reacted by stating that such actions "bring an
unfavorable impact on bilateral trade".
While a showdown on trade deficits,
piracy, counterfeiting and currency valuation can
still be averted, the path to a solution will not
be easy. Wu is no stranger to such disputes; she
earned the nickname "iron woman" dealing with her
counterparts from the administration of US
president Bill Clinton in the 1990s. It can be
expected that the battled-hardened Wu will try to
make her case and win the current administration
over when she goes to Washington.
In fact,
before starting her US trip, Wu has already struck
a blow. Last Wednesday in Zhengzhou, capital of
Henan province, the vice premier commented on
recent WTO complaints against her country, "China
will take on the US right to the end. A WTO member
filing two complaints against another member at
the same time has seldom, if ever, been seen in
WTO history."
Indeed, any talk of a
pending trade war may be alarmist; past showdowns,
announced sanctions and retaliation have by and
large resulted in eleventh-hour settlements. There
are important factors that could mitigate another
confrontation. The level of economic
interdependence between the world's largest
economy is high enough that punitive measures and
responses could hurt both sides.
Overlooked in the alarming deficit numbers
is the fact that US exports to China registered
more than 30% growth last year. China's dynamic
economy has already become the growth engine in
Asia, and its domestic market potential is
sizable. Beijing, to its credit, is intensifying
the crackdown on piracy and counterfeiting by
increasing penalties, even though enforcement
remains a challenge. However, the hardest nut of
all will be any dramatic change in the
appreciation of the Chinese currency given the
likely repercussions on China's exports,
employment and, by extension, social stability.
Ironically, some of the US complaints
about barriers to China's market cannot be fully
addressed by Beijing without Washington making
changes to its export-control regulations
governing high-technology transfers to China. If
anything, the Commerce Department is proposing new
rules that would impose even more stringent
controls on 47 so-called sensitive items. On
others, barriers to market access reflect
Beijing's concerns over protecting its still-weak
service sector against foreign domination.
The tension between Beijing and Washington
is not confined merely to the economic and trade
arena. The past few months have also seen concerns
from Washington over Chinese defense budgets and
growing military capabilities that are perceived
as serious threats to US interests. Indeed, there
have been widespread coverage and speculation, as
well as official statements, on China's space
weapons, nuclear submarines, and strategies
against US forces in a potential military conflict
across the Taiwan Strait.
US reactions to
China's hikes in defense spending and its expected
military buildup were cautious but concerned.
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