By Tao Wenzhao
US senators Charles Schumer and Lindsey Graham, urged by
President George W. Bush and under the lobbying of Treasury
Secretary Henry Paulson, announced on September 28 that they had
shelved their bill pushing for the imposition of 27.5 percent
penalty tariffs on Chinese imports unless China moved to allow a
greater appreciation of the renminbi, according to media reports.
The US Congress would have voted on the act on that very day.
With the bill's withdrawal, the strained US-China trade
relations have coasted around a snag.
The two senators initiated the bill because of the United
States' ever-expanding trade deficit with China, which according to
the US calculation, hit US$162 billion in 2004, for example.
After 2000, China replaced Japan as the country to which the
United States owed the biggest reversed trade balance. Senators
Schumer and Graham believed that China engaged in unfair
competition on the world market, and the US market in particular,
by keeping the renminbi's exchange rate artificially low.
Hence, they pushed for the penalty tariffs on Chinese
commodities entering the US market unless China raised the
renminbi's exchange rate by comparable margins.
The motive is obvious. But from what perspectives should we
approach the matter?
For a start, the United States' reversed trade balance with
China is determined by the economic structures of the two
countries.
The United States, a highly consumptive economy, needs an
incessant flow of consumer goods from various countries, which
necessarily opens the US market wide for cheap and good Chinese
goods.
By contrast, China enjoys a very high bank savings rate, which
means that Chinese consumers buy relatively less.
On condition that the economic structures of the two countries
remain unchanged, the unbalanced trade will be there, which is good
for both nations in the opinion of this author.
In the repeated trade talks and negotiations launched since the
1990s, Chinese negotiators have time and again pointed out that
labor-intensive industries are on the wane in the United States in
the context of quickened globalization and internal US industrial
realignment. In this scenario, hot sales of Chinese labor-intensive
products are powered by market forces rather than artificial
means.
Additionally, US companies rush to set up processing operations
in China or make large procurements in the country, making full use
of China's cheap labor force. This is how the US firms pay the
lowest possible cost and gain the fattest possible profits. Exports
by the foreign-funded processing operations make up a very big
proportion of total Chinese exports to the United States - 48
percent in 2002, for example.
If all Asian economies are treated as a whole entity, no
significant fluctuations are seen in the US trade imbalance with
the area. Between 1990 and 2002, for instance, the bundled share of
exports to the United States from the Republic of Korea and China's
Taiwan Province declined from 27 percent to 17 percent while the
portion from the Chinese mainland rose from 3 percent to 11
percent.
Finally, the United States imposes strict controls on the export
to China of US high-tech products, involving nuclear reactors,
satellites, integrated circuits and sophisticated machinery. This
constitutes a double-bladed sword, doing no good to China and also
harming the United States' own business interests.
Starting in 1994, the renminbi was pegged to the US dollar in
terms of the exchange rate. As a result, the Chinese currency
gained much in value, powered by the strong US dollar at the
time.
In the late 1990s, when the Southeast Asian financial crisis
broke out, China maintained the renminbi's value against heavy odds
in a bid to stabilize the Asian economic situation as a whole. Its
Asian neighbors, hit hard by the crisis, gave China credit for
helping the region tide over the financial straits.
But winds began to blow in a different direction in 2002, when
the US dollar began to devaluate.
Some US exporters, labor organizations and congressmen started
pointing fingers at the pegging of the renminbi to the US dollar,
charging that the fixed exchange rate between the Chinese currency
and the greenback kept Chinese exports to the United States
artificially cheap and US exports to China expensive, which largely
undermined the competitiveness of US commodities. In their eyes,
the renminbi's value was shoving up the United States' trade
deficits with China and causing the evaporation of many working
posts in American manufacturing sectors.
It was in this context that the Schumer-Graham bill was put
forward in September 2003, and re-initiated in February 2005.
The Bush administration, however, adopts a different stance from
that of the protectionist-minded senators.
On the one hand, top Bush government officials keep pressure on
the Chinese Government for reforming the renminbi's exchange rate
mechanism; but on the other hand, former US treasury secretary John
Snow did not put China on the list of countries regarded as
manipulating the exchange rates of their currencies.
Many American economists voice their opinions on the issue of
the renminbi's revaluation. For example, Stephen Roach, chief
economist of Morgan Stanley, remarked that China does not base
competition on the devaluation of its currency and that revaluation
in large margins would unlikely exercise significant influence on
the price of Chinese exports.
Again, Roach said at the Davos World Economic Forum in January
2005 that the appreciation of the Chinese currency would not help
significantly to bring down the US trade deficits.
Robert Mondale, the renowned economist and also a Nobel
laureate, maintains that the renminbi's exchange rate should remain
stable.
More and more Americans have come to realize the importance of
China-America trade to the United States and become increasingly
aware of the two countries' economic interdependence, though a
protectionist mentality sticks at the US Congress.
This largely set the stage for the economic strategic dialogue
between the United States and China, which was officially launched
by US Treasury Secretary Paulson and Chinese Vice-Premier Wu Yi during the former's visit to China last
month.
As this indicates, dialogue, rather than confrontation, is the
best way to settle disputes at various levels and in different
areas. Pressuring did not and will not achieve what dialogue
does.
The author is a researcher with the Institute of American
Studies under the Chinese Academy of Social Sciences.
(China Daily October 11, 2006)
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