U.S.: The Case for Trade Sanctions Against China
Oct 23, 2003
Summary
stratfor.biz
With the campaign to force China to free up its pegged currency yielding little, the United States is building a multifaceted case for trade sanctions against China. U.S. officials are delivering the first salvos personally this week, heralding the rising trade tensions between the two countries. This strategy is not without risk to the Bush administration.
Analysis
U.S. Trade Representative Robert Zoellick said Oct. 22 that Chinese access to U.S. markets depends on U.S. access to Chinese markets. "I believe in open markets [and] I think the United States' market should remain open, but the only way that we can maintain open markets is if American exporters have an opportunity to export here," he said while in Beijing.
Zoellick's comments come on the heels of U.S. President George W. Bush's visit to Asia, where he ratcheted up pressure on China to float its currency. The yuan is pegged to the U.S. dollar, and many in the United States are blaming a loss in manufacturing jobs on this. But as expected, Bush was no more successful in getting concrete commitments out of China than was U.S. Treasury Secretary John Snow, who has made similar demands on previous trips to Asia. The best Bush could get was another version of China's stock answer to "study the issue," this time in the form of a bilateral commission to -- as can be guessed -- study the issue.
But the White House is not finished. The currency campaign will take the administration only so far with what has become a key electoral issue: protecting U.S. jobs. The administration needs to demonstrate concrete action -- or at least movement -- toward some tangible results. Enter Bush, Zoellick and now U.S. Commerce Secretary Don Evans.
Evans will travel to China on Oct. 24 for trade talks with Chinese officials. These are not likely to be warm and fuzzy. In fact, Undersecretary of Commerce Grant Aldonas, who is traveling with Evans to Beijing, gave a preview of the U.S. trade team's message in testimony to Congress on Oct. 21. Aldonas said that the United States has been patient with China to fulfill its WTO commitments, but that Washington now expects action. "There's a point at which the bill comes due and that point is now," Aldonas said.
Zoellick and the U.S. Commerce Department are building a case that China is not offering a necessary quid pro quo for Chinese access to U.S. markets. The implication is that the United States stands willing to shut off certain segments of China's exports. This is a serious threat, since China exported some $125 billion to the United States last year, making it the top destination for Chinese exports -- about one-third of its total.
Specifically, U.S. officials will pressure China to live up to its WTO commitments, including cracking down on intellectual property violations and loosening controls on agricultural imports such as soybeans. They also will address complaints by trade groups, including one from the U.S. Chamber of Commerce in China that Beijing is blocking access to sectors such as telecommunications and banking.
The United States is not alone in its complaints, which gives it more weight in negotiations. The European Union Chamber of Commerce in China has just issued a white paper documenting China's failures to fulfill its WTO commitments, alleging that Beijing is using regulations to backpedal on them. The paper highlights tightening restrictions in various sectors, including automobile manufacturing and construction. "The business environment for some companies is becoming more difficult, not less difficult," the chamber's vice president said Oct. 22.
The United States is taking its complaints straight to Beijing, not the WTO, because Washington needs quick results and WTO processes are excessively lengthy. The Bush administration hopes its threats will result in Chinese concessions. Bush could wrap them into his re-election campaign as evidence that he is taking concrete steps to protect U.S. jobs and corporations. This gives the administration a short timeline. Nevertheless, the United States has the WTO mechanisms to justify its threats and as another tool to hold China's feet to the fire.
Unlike the Bush administration's exhortations on currencies, it has more options for concrete actions on trade issues. Linking currency policies to trade sanctions -- as some in Congress have demanded -- is too tenuous to gain full congressional support, could upset global currency markets, and would elicit strong international reprimands.
Retaliatory trade sanctions are another matter, however, and Congress is in a mood to act against China. Not only is the president up for re-election in 2004; so is most of Congress. Fair trade with China is an issue that politicians of all stripes can wrap themselves around, and various House leaders have been demanding stronger action to force China into opening its markets.
The Bush administration hopes its threats will lead to concrete concessions -- such as getting rid of a rebate on value-added taxes for exports that China recently has started talking about lowering. But if real concessions fail to materialize, Washington collectively is in a mood to move forward with some set of actual sanctions. That, in turn, could cause problems for the Bush administration.
For all the talk, the White House is likely not excited about the idea of launching a full trade war with China. This could lead to a backlash by politically powerful U.S. manufacturers such as General Motors and General Electric, who are anxious to get in on the China boom but could suddenly find themselves locked out if Washington imposes sanctions and China retaliates.
If the momentum for sanctions escapes the White House's control, the whole strategy actually could backfire. The Bush administration could be forced to either face down Congress and oppose sanctions, or to go along with lawmakers and risk opposition from many of its key corporate political backers. The White House has great political motivation to go after China more aggressively, but there is a limit. This further raises the stakes for the White House to come away with more than empty promises from the new leadership in Beijing.
This need could work in China's favor if Beijing understands -- as it surely does -- the extensive political dynamics of the situation. Beijing could decide to hold firm -- recognizing that the White House is playing election games -- and be unwilling to push the sanctions threat too far. Or China's leadership could look to throw the Bush administration a bone and give it something concrete -- though not too painful from China's perspective -- that the administration can gratefully take back to Washington.
If Evans can bring something like that home with him, it will be a good week for the White House. |
