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)