HONG KONG - The growing club of
China-bashers in the US Congress scored a victory
last week when the Commerce Department slapped
anti-subsidy duties on imports of glossy paper
from China.
The move opens up a possible
Pandora's box of future tariffs on other products
from China, ranging from steel to machinery to
plastics to textiles. That, of course, would start
a trade war.
The good news is that US
Treasury Secretary Henry Paulson is smarter than
that. The new duties, which reverse a policy that
originated during the Cold War
against applying countervailing tariffs on goods
imported from "non-market" economies, are more
likely Washington's gambit ahead of high-level
trade talks to be held next month in the US
capital.
With the specter of further
duties looming, President George W Bush may be
hoping to mollify the new Democrat-controlled
Congress and at the same time scare the Chinese
into further concessions on appreciation of the
country's currency, the yuan. Critics say the yuan
is woefully undervalued, thus fueling the United
States' record US$233 billion trade deficit with
China last year.
But two can play the
scare game. China's response to the US policy
reversal was predictable.
"The Chinese
side strongly demands that the US reconsider this
decision and correct it as soon as possible," said
Commerce Ministry spokesman Wang Xinpei in a
statement posted on the ministry's website. "This
action by the US goes against the consensus
reached between leaders of the two countries to
resolve contradictions through dialogue."
Wang added that China reserves "the right
to take any necessary action" in response to the
US decision, but left the specifics of that
response to the American imagination.
In
addition, one of the two Chinese companies
targeted by Washington announced that it is
mounting a legal challenge to the new duties.
"We will challenge the legality and try to
reduce the duty as far as possible," Wang Tianxia,
a financial manager at Shandong Chenming Paper
Holdings, told Reuters, "but there is not much
more we can do. After all, this isn't aimed at
just us or even coated paper. It's about
subsidies, not just our companies."
The
China Business Times quoted an anonymous official
from Gold East Paper Co, also targeted by the US,
as saying: "This outcome will undoubtedly have a
big impact on China's coated-paper market. We may
reduce exports to the US and expand them to other
countries and regions. At worst, we'll abandon the
US market."
US imports of glossy paper
from China increased from $29 million in 2004 to
$224 million in 2006.
The case against the
two Chinese companies was brought last year by
NewPage Corp of Dayton, Ohio. NewPage has also
asked that an anti-dumping duty of nearly 100% be
levied against China. Anti-dumping tariffs are
imposed on goods sold below what is deemed fair
market value, even without subsidies.
Announcing the Commerce Department's
decision, Secretary Carlos Gutierrez set a
countervailing duty of 10.9% against Shandong
Chenming and 20.35% against Gold East Paper. He
also said a preliminary rate of 18.16% will apply
to all other glossy-paper exports from China.
Until the department makes its final ruling this
year, Chinese importers must post bonds or deposit
cash with the US Customs Service based on the
preliminary rates.
This was the first time
countervailing duties against China had been
sought since 1991, when the Commerce Department
rejected two similar requests. For decades, the
department had held that subsidies in communist
economies were impossible to measure, but this
time Gutierrez struck a different note.
"China of 2007 is not a Soviet-bloc
economy of the mid-1980s," he said. "Companies in
China do respond to subsidies, and we can
reasonably measure the response."
But he
also said the best way to decrease the massive US
trade deficit with China is by increasing exports,
not decreasing imports, and made a point of
pledging continued economic engagement with
Beijing.
That's a mixed message for next
month's "strategic economic dialogue" in
Washington, during which Paulson will negotiate
with a delegation led by Vice Premier Wu Yi. The
Bush administration will no doubt use the threat
of additional duties to pressure the Chinese on
better protection for intellectual-property rights
for US books, films and music, which continue to
be routinely flouted in China, and to urge faster
appreciation of the yuan.
But promises -
and even progress - on intellectual-property
rights are easy to make, and gradual appreciation
of the yuan is already a key part of China's
economic blueprint, so it is not clear what
substantive concessions Beijing will have to make,
beyond tolerance of rhetorical put-downs, to avoid
additional tariffs.
As China is the United
States' second-largest trading partner (behind
Canada) and holds $400 billion (nearly 19%) of the
nation's debt, Beijing also has a few cards to
play during the talks. Indeed, it has already
started playing them.
According to a Dow
Jones Newswires report, China has drafted a plan
to buy $12.5 billion worth of US goods - $10
billion for mechanical and electronic products, $2
billion for soybeans and $500 million for cotton.
These purchases, scheduled to be made next month,
are clearly timed to have an impact on the
Paulson-Wu meeting.
To US complaints about
the Chinese currency, the Wu delegation can argue
that the yuan has been steadily appreciating since
it was delinked from the US dollar in July 2005.
The currency gained about 1% this year and has
strengthened nearly 7% since its unpegging. Many
US lawmakers and manufacturers claim, however,
that it is as much as 40% undervalued, leaving a
lot of room for misunderstanding, argument and
negotiation.
Republican Congressman Phil
English, who is up for re-election next year in
Pennsylvania, was certainly playing to the gallery
when he said of the new tariffs: "This decision is
the most significant step toward a stronger trade
policy with China than we have experienced in this
decade."
English, like many of his
congressional colleagues, both Republicans and
Democrats, wants the Commerce Department to apply
countervailing duties not just to China but also
to other so-called non-market economies, such as
Vietnam's.
The rising ire in Congress over
the trade deficit does not, however, take into
account all of the foreign-invested corporations,
some of which are American, that figure into more
than half of China's export figures. The
importance to the US and to the rest of the world
of China's sustained economic growth also does not
hold a prominent place in the political
grandstanding over the trade imbalance. If Beijing
allows the yuan to rise too precipitously, that
growth will be threatened, and everyone will be
worse off.
Surely, when things get down to
brass tacks in Washington next month, cooler heads
will prevail. The world's richest nation cannot
afford to launch into a trade war with the world's
most important emerging power. Because of its
debt, the US has become dependent on China's
growth. Other Asian economies, which act as a
supply chain for China's manufacturing industry
and with which Beijing runs a trade deficit, are
also counting on that growth.
Add China's
considerable investment in Africa to the equation
and the world of trade becomes an increasingly
complex place. It may be time to change outdated
Cold War economic formulas, but Beijing and
Washington need to dance, not fight.
Kent Ewing is a teacher and
writer at Hong Kong International School. He can
be reached at kewing@hkis.edu.hk.
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