Sat, Jun 14, 2008 - Page 9 News List

Anti-China legislation loses steam as Congress looks elsewhere

The strengthening yuan and a decreasing trade deficit with the US have weakened the congressional focus on Chinese protectionist industrial policy — for now


Two years ago, US Treasury Secretary Henry Paulson Jr left Goldman Sachs and joined the Bush administration, hoping to use his expertise and contacts to ease economic tensions with China. His other goal was to stop Congress from passing legislation that might make tensions worse.

Today the administration has won only limited concessions from China. But it is also breathing a bit easier about possible retaliation by Congress.

Legislation aimed at punishing China over its currency practices, which have kept the price of Chinese exports artificially low, seemed to have momentum earlier this year. But in the waning weeks of Congress, lawmakers and their aides say its prospects are doubtful.

Paulson, meanwhile, will be leading a delegation of Cabinet members to meet with their Chinese counterparts in Annapolis, Maryland, next week, at what will be the fourth semi-annual round of high-level economic talks under the “strategic economic dialogue” started in 2006.

Administration officials say that while several specific trade issues have been resolved in the last two years, they are increasingly concerned that China is backtracking by using regulations, standards and other means to favor Chinese industry and shut out foreign competition.

The Chinese have their own list of complaints, producing a discordant atmosphere for the talks. In a scathing critique of US policies, for example, the Chinese envoy to the WTO charged in Geneva on Monday that the US let the dollar depreciate against other currencies, choking the global economy with high oil and food prices.

The dollar’s decline, said Sun Zhenyu (孫振宇), the Chinese envoy, had also shrunk the value of reserves held by China and other countries. He charged that the Bush administration had engaged in continuous abuse of the world trading system by imposing duties on Chinese goods, maintaining high tariffs and subsidies on many US products and restricting the export of high technology to China.

Paulson said on Tuesday that he would press in Annapolis for a more open Chinese economy and convey “the concerns of American companies that China’s investment regulations are opaque and seem in many ways to be designed to favor China’s ‘national champions.’”

Overall, Paulson insisted, speaking at the Carnegie Endowment for International Peace, the US-China relationship was “growing in a positive direction.”

Lawmakers in Congress may not share that view, but several factors appear to have taken the steam out of their willingness to act.

First, the devastating Sichuan earthquake and the global efforts to help its victims make this an inappropriate time in the eyes of some to be punishing China over its trade practices.

Second, although congressional ire remains focused on China’s intervention in the currency markets, the yuan has appreciated nearly 20 percent since mid-2005.

As a result, the growth of exports to China is outstripping the growth of imports from China, and the China-US trade deficit is heading slightly downward from its record level of US$256 billion last year.

There is also a stubborn dispute in Congress between the approaches of two competing bills, one passed by the Senate Finance Committee and the other by the Senate Banking Committee, to punish China if it does not do more to let its currency rise in value.

Attempts are being made to resolve the differences, but the prospects are doubtful because Congress is caught up in a heavy load of other business and election concerns.

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