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Last Updated: Tuesday, 9 December, 2003, 15:13 GMT
US sees red over China trade

Analysis
Mary Hennock
BBC News Online business reporter

China's Premier Wen Jiabao has been working hard to demonstrate his friendliness towards US business interests ahead of his meeting with President Bush.

Wen Jiabao at New York Stock Exchange
Mr Wen (centre) wants the US to drop hi-tech export bans

He rang the opening bell at the New York Stock Exchange, and told the American Bankers Association (AMA) that he had come "to seek friendship and co-operation, and not to fight a trade war".

But trade frictions will be high on the agenda of the two leaders' White House meeting on Tuesday.

The Bush administration has stoked a war of words against Chinese exports in recent months.

Rising tension

China's fixed exchange rate policy is blamed for undervaluing the yuan, prompting a surge of cheap exports that US critics say has claimed 2.7 million US manufacturing jobs since 2000.

US wood furniture makers want trade sanctions
Furniture factory in Guangdong, South China
China's exports to US - $1.65bn in 2000
China's exports to US in 2002 - $2.89bn
Up 75%
Source: American Furniture Manufacturers' Committee for Legal Trade

The Bush Administration successfully urged the Group of Seven rich nations and the International Monetary Fund to back its call for a revaluation of the yuan.

Last month, the focus shifted to bras, knitwear and dressing gowns as the US capped Chinese textile imports to protect its own producers. China retaliated by delaying purchases of US farm products.

Rising tension over trade comes two years after China joined the World Trade Organisation (WTO) amid a fanfare of hope and expectation.

US businesses led the chorus, lobbying hard for Congress to back China's entry.

Roaring growth

The mushrooming US trade deficit with China is set to hit $120bn (69bn) this year. China has outstripped Japan as the biggest contributor to the US trade deficit.

China's economy has not dipped below 7% growth for many years, in painful contrast to the US where bosses are still crossing their fingers that a convincing recovery is on the way.

China is also the world's top destination for foreign investment as Western firms have moved there to take advantage of its mix of cheap skilled and semi-skilled labour. Wages are roughly one fortieth of US levels.

About face

But trade figures alone cannot explain the public falling out between the US elite and China.

Mobile phone factory in South China
China's exports range from clothing to electronic goods

With US presidential elections due in 2004, China's growth surge is a tempting target for a medley of forces in US politics.

Both the Bush White House and its Democrat opponents need to woo big business and blue collar votes.

Attacking Chinese goods enables them to do both at once.

The National Association of Manufacturers (NAM) is now lined up alongside anti-globalisation protestors and labour unions, who have long criticised trade with China on a mix of protectionist and human rights grounds.

"This will stay throughout the election year," says Dong Tao, the Hong Kong-based chief economist for non-Japan Asia at investment bank Credit Suisse First Boston.

Hidden benefits

Not all economists think US criticisms of China are fair.

Yantian port, Shenzhen South China
China is sucking in more imports

Many see the shift in manufacturing jobs to Asia as inevitable, pointing out that manufacturing's role in the US has shrunk in favour of services.

They argue that US consumers benefit from cheap Chinese goods and would simply have to pay more - and want higher wages - if China succumbed to pressure to revalue the yuan.

US industry would be the ultimate losers, they say.

Roughly 60% of US manufacturing investment in China since the early 1980s has been channelled towards producing goods for export, often back to the US, estimates Morgan Stanley chief economist Stephen Roach.

Nobel prize winner Professor Joseph Stiglitz has criticised US hypocrisy over free trade, saying Washington's commitment to dismantling trade barriers is jettisoned as soon US industry faces challenges to its pre-eminence.

China has merely replaced Japan as the main US target, he says.

Furthermore, China is now being attacked for same stable exchange rate policy that helped to contain the meltdown of the Asian financial crisis, winning praise at the time.

The US trade deficit with China fails to reflect exports of services to China, says CSFB's Mr Tao. However, it does bundle in the made-in-China products of firms from other Asian nations.

China's defence

China has sought to contain trade tensions by signing high-profile deals to import aircraft, cars and farm goods ahead of Mr Wen's US tour.

But Mr Wen has also issued blunt rebuttals of US criticisms, while promising to find ways to buy more US goods.

"Reducing Chinese exports...will seriously harm the interests of millions of American consumers and US firms operating in China", he told an audience of Wall Street bankers.

He has promised not to rule out currency reforms, while defending the benefits of the status quo in cheap goods for US shoppers.

The quickest way for the US to increase its exports to China would be to scrap restrictions on sales of cutting edge technology, in which the US enjoys an advantage, says Margaret Dooley of the Economist Intelligence Unit.

But removing export bans on goods with potential military uses is a politically sensitive issue, "so that's not going to happen," she adds.

Stronger growth in the US might help ease trade tensions, but it cannot wipe out US reliance on Chinese manufactured goods. Given that, more trade flare ups seem inevitable, even beyond the US presidential election.




SEE ALSO:
Taiwan tensions cloud China US visit
05 Dec 03  |  Asia-Pacific


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