Chinese President Hu Jintao's (
With China's US trade surplus reaching US$200 billion last year, US sentiment is leaning toward taking strong measures. A recent congressional bill has called for imposing a 27.5 percent punitive tariff on Chinese imports.
The trade imbalance is more complicated than the currency issue per se. Globalization has strengthened the ability of capital to flow to wherever investment promises the highest return; likewise, competitive manufactured products from low-wage economies will flow in the other direction. That is why China fascinates US investors, among others, and why US customers buy Chinese products.
To be sure, the exchange rate has an impact on investment and trade. But, even with China's efforts to loosen the yuan-dollar linkage, it is arguable whether revaluation could save US jobs or improve the US trade balance. After all, China is not alone: India and other competitive developing countries pose a similar challenge to the US.
Nevertheless, for China's part, it now seems to be a good time to reflect on how to increase the country's value-added exports, as well as focus on environmental protection and sustainability. Thus, there is scope for a compromise that recognizes both sides' legitimate concerns.
The Chinese government is hastening its shopping spree in the US these days, pushing up the yuan's exchange rate slowly but steadily. A sensible US policy on China would be to accept gradual currency appreciation, rather than a large revaluation, as the US' economic vitality stems from its own innovation rather than from concessions by the Chinese government.
A more difficult issue for Hu could be IPR. China's recent campaign to crack down on pirating needs to be encouraged, but far more needs to be done. However, while the US government and US companies question whether the Chinese are willing and able to enforce such rights, this issue must be put in historical perspective.
IPR protection is related to economic development, so the question should be whether China has reached the stage at which effective protection is possible.
There is a positive side to such problems, however, namely that their very emergence reflects the deepening and broadening of bilateral relations. Indeed, Sino-US interaction has been so strong that the two presidents met five times last year.
For example, the two states share a common interest in anti-terrorism efforts, and they have been collaborating to ensure container security and combat human trafficking. Their coordinated efforts to divert North Korea peacefully from its nuclear course have also vindicated bilateral cooperation when both sides can define a common security stake.
Similarly, the two countries have a common interest in stabilizing China's relations with Taiwan. The current formula, maintaining the "status quo," offers the highest common denominator. With this strategic understanding, there is good reason to expect that Hu's talks with Bush on Taiwan's recent termination of the National Unification Council will serve to reduce tensions. China and the US both have much to gain by thwarting Taiwan's apparent moves toward independence.
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