Yuan Peng

 

US Secretary of Commerce Carlos Gutierrez announced last Friday that the United States would slap punitive tariffs on glossy paper imported from China to protect American manufacturers from the impact of China's government-subsidized products.

 

This decision means the US would start levying 10.9 percent to 20.4 percent countervailing duties on China-made glossy paper. It would be the first time in 23 years that the US uses the countervailing act against a "non-market economy" such as China.

 

The explanation Gutierrez gave for this decision was that today's China is not what it was a few years ago and, as China has developed, the means for the US to ensure fair trade should be expanded as well.

 

This explanation is far from convincing. Previously the US did not apply the countervailing act on China because its economy was rather weak; whereas today it is necessary to punish China because it is more developed economically.

 

Does this mean the level of China's economic development will be the main criterion for the US to decide whether to employ punitive measures against China?

 

Another puzzling fact is that, since the US has never recognized China as a "market economy", why did it abandon the pragmatic approach pursued for more than 20 years on the issue of government subsidies for some Chinese industries?

 

By breaking with the usual practice, Washington is subjecting China to double injustice as it unfairly treats China as a "non-market economy" with punishment meant for "market economies". With this move the Bush administration has opened the door for other US industries such as steel and furniture to follow suit. This would very likely deal a heavy blow to normal economic and trade relations between the two countries.

 

What has prompted the US to make a move that defies the hidden rules on bilateral trade? The root cause is domestic politics. Since the beginning of this year, the trade subcommittee of the House of Representatives Ways and Means Committee and Senate Finance Committee have held four hearings on issues including China's currency exchange rate, intellectual property rights, opening of China's financial market and the trade imbalance.

 

Democratic Senator Charles Schumer and Republican Senator Lindsey Graham are back again with a bill that "the president cannot veto" to force China to relax its control on the RMB exchange rate. Such topics are making the rounds again because the Democrat-controlled Congress wants to show off its influence by increasing pressure on the Bush administration to push China. Senator Schumer and his like-minded colleagues are eager to attract public attention by playing a remix of the RMB exchange rate oldie.

 

As the US presidential election campaigns heat up, neither the Democratic nor the Republican Party wants to be seen as indifferent to the growing trade deficit with China. They both hope to win over US voters by scoring against China.

 

Another important reason for the Bush administration to give up the usual practice of resisting Congressional pressure to launch unilateral actions against China is that the US side has failed to achieve any breakthrough in China-US strategic dialogue on economic or other issues. Even Treasury Secretary Henry Paulson, who is relatively soft on China, has become impatient.

 

The US government decided to use punitive measures against China this time as a response to domestic political pressure along with the hope of forcing China into more compromises before the second round of bilateral strategic dialogue on economy in Washington next month.

 

In fact, what is really behind the US Congress' repeated pestering and Washington's punitive measures is the erroneous interpretation of the development of Sino-US trade ties, its ultra-alarmist response to the growth of China's economic strength, and its attempt to shirk responsibility for failing to make correct policy adjustments.

 

Three trends in China's economic development in recent years have made the US uneasy. The first is the US trade deficit with China reaching US$232.5 billion, accounting for 30 percent of the country's total trade deficit. The second is China's foreign currency reserve exceeding US$1 trillion as it holds nearly US$300 billion worth of US treasury bonds. The third is the heavy impact on the New York Stock Exchange of the Shanghai stock market's sharp drop on February 28.

 

Faced with these numbers and facts, few US lawmakers looked for the causes in the fact that American consumers prefer spending to saving and that Washington had lost many opportunities to rebalance bilateral trade because of its insistence on over-politicizing bilateral trade ties, always blaming China. The lawmakers are only too ready to accuse China rather than search for ways to improve US competitiveness.

 

As China-US economic and trade relations become more mutually dependent, an increase in trade disputes, frictions and even conflicts will occur. This is a normal and natural process. Since China-US trade suffers from structural defects, it would be unrealistic to expect to cure all with one quick fix.

 

The establishment of the China-US Joint Committee on Economy and Trade and strategic dialogue on the economy were meant to limit friction and resolve differences. Rational dialogue was seen as the way to make bilateral economic and trade ties healthier and more stable. Losing one's cool and jumping to retaliation just because one round of talks failed to solve the problem will only damage normal bilateral trade relations and oneself.

 

The author is a researcher with the China Institute of Contemporary International Relations

 

(China Daily April 4, 2007)