EYE ON
AMERICA Punishing China: US
on the wrong track By Peter Morici
US Trade Representative Sue Schwab has
announced that the United States is filing a
complaint with the World Trade Organization (WTO)
against China's subsidies aimed at boosting
exports and discouraging imports. While this is
welcome news, it remains to be seen whether this
offers American workers victimized by Chinese
mercantilism any real relief.
The
subsidies targeted by the US administration
include various
corporate-income, value-added
and employment tax exemptions, and low-interest
loans awarded by China's state-run banks.
According to Schwab, these programs
benefit some 60% of China's manufactured exports.
Hence it is no coincidence that China accounts for
more than a third of the US trade deficit and a
larger share than either petroleum or automotive
products.
Anyone knowledgeable about the
nature and consequences of these subsidies has to
wonder: Why has it taken the administration of
President George W Bush so long to act? And why
has it chosen the WTO when quicker forms of relief
are available?
Export subsidies are
considered among the most egregious violations of
WTO rules and carry the harshest penalties. WTO
rules permit the United States to impose,
unilaterally, countervailing duties on subsidized
products from China to neutralize the effects of
these practices.
Unfortunately, the
administration of the late president Ronald Reagan
suspended application of US countervailing-duty
laws on imports from non-market economies in 1984.
Much has changed since then, and Russia, China and
other former communist economies are generally
integrated into global markets. Their products
should have to compete by the same rules as those,
for example, made in Japan or the European Union.
The Bush administration is only now
considering a change in policy but has not yet
taken action. It is no coincidence that US
multinationals with manufacturing operations in
China lobby against taking strong action against
Chinese mercantilism.
The history of WTO
disputes addressing broad subsidies, such as tax
holidays and bank credit, indicates that the US
complaint will likely take years to resolve. China
will have many options to reconfigure these
practices before ultimately relinquishing them.
Practically speaking, asking the WTO to
address Chinese export subsidies instead of
applying US countervailing-duty laws would be like
calling the United Nations to coordinate cleanup
after Hurricane Katrina instead of dispatching the
Federal Emergency Management Administration.
However, after five years of bungling such issues
as nuclear proliferation, global warming and the
war in Iraq, none of us should be too surprised by
inexplicable behavior at the Bush White House on a
foreign-policy issue.
Even more
problematic, the complaint to the WTO does not
mention that China provides subsidies to 100% of
its exports by persistently buying US dollars in
currency markets to ensure a low value for the
yuan against the dollar. This is despite the fact
that Federal Reserve chairman Ben Bernanke singled
out currency subsidies during his recent trip to
China and that China could replace all the tax and
credit subsidies cited in the WTO complaint by
stepping up its currency-market intervention a
notch. In the last US Congress, a bipartisan
bill sponsored by Republican Duncan Hunter and
Democrat Tim Ryan was offered that would require
the administration to apply the
countervailing-duty law to subsidies in non-market
economies such as China, and specifically
enumerated manipulated currencies as actionable
under the law. With the Republicans in charge,
Hunter-Ryan languished.
Now the Democrats
are in control, and we have seen their priorities.
The House of Representatives has already voted on
a minimum-wage bill, but Hunter-Ryan is not yet on
the docket. In Senate hearings, Democrats put
Treasury Secretary Henry Paulson on the hot seat
on trade with China, but have abstained from any
substantive measures to force administration
action.
Instead, the Democratic
congressional leadership holds hostage renewal of
the president's authority to negotiate trade
agreements. They want assurances that labor and
environment standards will be written into these
deals. As with subsidies, the United States
already has latitude to take action against
products made using child workers and in many
polluting factories but has chosen not to act.
Writing those issues into trade agreements won't
help if the person in the White House won't
enforce US rights.
The dirty little secret
in Washington is that Democrats have lots of
corporate friends in Hollywood, who are more
interested in intellectual-property issues than
subsidies that harm US manufacturers, and on Wall
Street, who earn big profits from Chinese
protectionism.
So far, the Democrats have
talked a good game but have offered working
Americans no real action on trade issues.
Republicans and Democrats may dance to
different tunes but when the music stops, it is
still the worker gored by Chinese subsidies who is
left without a chair.
Peter
Morici is a professor at the University of
Maryland School of Business and former chief
economist at the US International Trade
Commission.
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