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Last Updated: Friday, 17 February 2006, 08:17 GMT
Fears of growing US trade rift with China
By Jon Cronin
BBC News business reporter

US President George W Bush (left) and Chinese President Hu Jintao
The US and China face an acrimonious divide over trade

The increasingly tense trade relations between China and the US have taken a new twist, with Beijing warning that threats from Washington could damage both countries.

"Imposing pressure or sanctions to solve problems between the two will not be beneficial for China-US trade relations and will not be beneficial for the United States' interests," Chinese foreign ministry spokesman Qin Gang said on Thursday.

The government in Beijing was responding to accusations in the US that China is engaging in unfair trade practices against the world's biggest economy.

Critics in the US argue that the country is being flooded with cheap Chinese exports, leaving domestic rivals unable to compete and threatening jobs in America's industrial heartlands.

The US announced on Tuesday that it was toughening its stance on China's trade practices with the setting up of a task force to ensure Beijing complies with global trading rules.

"Our bilateral trade relationship with China today lacks equity, durability and balance in the opportunities it provides," said US Trade Representative Rob Portman.

Growing unease

That the US should express such sharp differences with a key trading partner is not new.

Through normal trade, China has provided cheap and good quality goods to American customers, and this has benefited masses of US consumers
Qin Gang, Chinese foreign ministry spokesman

Twenty years ago, America's frustration with what it saw as trade imbalances with Japan raised diplomatic temperatures between the world's two biggest economies.

More recently, US trade representatives have been locked in acrimonious negotiations with their European Union counterparts over agriculture and aerospace industry subsidies.

But the setting up of a taskforce focusing on just one country is a first in the US, and marks the growing unease among many in Washington about the direction of China's rapid economic development.

Yuan shake-up

US Trade Representative Rob Portman
Mr Portman wants the US to readjust its China trade policy

Behind much of the ratcheting up of Washington's frustration with China lies the soaring US budget deficit.

Although US global exports increased last year, the overall trade deficit ballooned to a record $725.8bn in 2005.

The sum of American exports to China came to a respectable $42bn during the year.

But the US trade deficit with China jumped by 24.5% to a record $201.6bn in 2005.

Critics in the US have long accused Beijing of keeping China's yuan currency artificially weak in order to boost its exports.

A breakthrough of sorts came in July last year when China revalued the yuan for the first time in a decade, allowing it to float against a basket of currencies instead of rigidly pegging it at a level against the dollar which many analysts argued was unrealistically low.

Financial markets

But criticism of China's trade tactics has, if anything, increased since the revaluation.

"The time has come to readjust our trade policy with respect to China," Mr Portman announced earlier this week.

US Treasury Department officials have reportedly been sounding out investors and academics about how financial markets might react to the administration branding China as a currency manipulator.

Such a move could lead to US trade measures against Beijing, analysts say.

However, complaints about the inequity of the relationship between the US and China do not just emanate from Washington.

Cheap goods

With an eye on legislation, proposed in the US Senate last week, which urges the government to repeal its permanent normal trade relations status for China, Beijing called on Thursday for the US to resolve its differences over trade "on the basis of equality".

China's foreign ministry was quick to point out that the current state of affairs had saved US shoppers many billions of dollars in cheap Chinese goods.

"Through normal trade, China has provided cheap and good quality goods to American customers, and this has benefited masses of US consumers," Mr Qin said.

Meanwhile, a separate - US - report also sheds a different light on trade relations between the two countries.

US companies have reported that their Chinese operations are flourishing, despite the rising trade tensions between Washington and Beijing, according to the American Chamber of Commerce.

Some 60% of the US companies surveyed revealed that they had a wholly foreign-owned enterprise in China, as restrictions requiring outside firms to set-up joint ventures are loosened.

The survey reflects the growing ease of access to China's previously guarded domestic market, says the Chamber of Commerce's Teresa Woodland.

"Market access, while it still is a challenge, has become much easier," says Ms Woodland. "That really exemplifies how things have changed here. Companies really do have a lot more options."

But the findings of business organisations such as Ms Woodland's have yet to ease the broader tensions between Washington and Beijing.

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