Tug-Of-War Over Trade

As China becomes the world's factory, U.S. manufacturers are getting hurt. Do the Chinese play fair? The answer is more complex than you might imagine

By Matthew Forney/Beijing Monday, Dec. 22, 2003
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    Show me the money The world's spotlight is on the yuan

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    The trade spat risks escalating into a nasty war, especially if politicians try to make it a major campaign issue next year. Some U.S. manufacturers are complaining and demanding protectionist legislation from an Administration that seems to be listening--at least with one ear. Although he bills himself as a free trader, Bush is finding it hard to ignore the millions of manufacturing jobs that have disappeared from states, like Pennsylvania and North Carolina, that will be pivotal in next year's election. He has unleashed Commerce Secretary Don Evans and Treasury boss John Snow to bark at the Chinese about exports and the cheap value of the yuan. Lawmakers sensitive to job dislocations among their constituents have loaded into the pipeline at least six bills that relate to trade with China. Jim Leach, the Iowa Republican who chairs the East Asian and Pacific Affairs Subcommittee of the House's International Relations Committee, says that future conflicts with Beijing will be "more about geo-economics than geopolitics" and that it's "largely up to China" to ease tensions. Last year China, at $103 billion, surpassed Japan as the country with the largest trade surplus with the U.S.

    The Administration had a chance to raise some of these issues with Chinese Premier Wen Jiabao when he visited Washington last week. But there were few signs that trade issues were a big concern. Wen accepted the 19-gun salute he received on the South Lawn of the White House, then fired his own volley, gently reminding his hosts that China is the fastest-growing market for America's exports. There are certainly U.S. companies that agree. Multinationals such as Motorola and Caterpillar have invested heavily in China and strongly oppose protectionism targeted at China.

    The fact is, while all countries engage in trade practices that aren't always legit (example: U.S. steel tariffs, which were lifted only two weeks ago after 20 months), China is not a particularly egregious trade cheat. China is far more open to foreign investment and imports than Japan was during its boom years in the 1980s. Few countries have embraced globalization at greater risk. The shutdown of inefficient state-owned plants has cost China tens of millions of factory jobs, with more to go.

    On a more pragmatic level, the U.S. needs China's cooperation on everything from trying to halt North Korea's nuclear-weapons program to building support for Iraq policy in the United Nations. That suggests Washington should play the trade card only sparingly. For now, the two sides are getting along well politically. Bush pleased Wen last week by saying he opposes efforts by Taiwan, which Beijing considers a renegade province, to alter its status.

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