Thu, Apr 12, 2007 page10

• Stakes too high for full blown US-China trade war: analysts

  BILATERAL RELATIONS The risk poised by tit-for-tat reprisals over proposed congressional legislation are real, but several analysts say that the stakes are too high for either side to chance a misstep

  • AFP
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  A spurt of US trade sanctions on China has raised the prospect of an all-out trade war but experts believe cool heads will prevail as the stakes are simply too high for the two powers.

  Egged on by a Democratic controlled legislature seeking strong action against Beijing over the US' burgeoning trade deficit, President George W. Bush's administration has thrice in the last three months dragged China to the WTO, the Geneva-based global trade watchdog.

  The last two high-profile actions by Washington over China's copyright infringements and market access barriers announced on Monday drew a stark warning from Beijing that they would damage trade relations.

  The actions came 10 days after the Bush administration made a landmark ruling to impose penalty tariffs on Chinese products that allegedly receive an unfair boost from government subsidies.

  EDITORIAL WARNING

  They could well be "first steps toward an all-out trade war with China," the New York Times said in an editorial on Tuesday, warning that any escalation would do more harm to US business than to China's subsidies.

  "What would happen to Boeing if the steel used in its jets became more expensive? The last thing a country with a record trade deficit can afford is to hurt its exporters," the newspaper said.

  "What must be avoided are the kinds of misunderstandings -- intensified by growing anti-China sentiment in this country -- that lead to tit-for-tat tariff reprisals until things spin out of control," the daily said.

  Over the next few weeks, the US Congress plans to consider a bipartisan action against China for allegedly keeping its currency artificially low.

  Proponents of the legislation say it will be well-crafted, WTO-compliant and difficult for Bush to veto.

  A bill in the last Republican-dominated Congress aimed at punishing China with a tariff if it did not revalue its currency surprisingly won two-thirds support in the Senate in a mere procedural vote. It was held back to give Beijing time to undertake currency reforms.

  LEGISLATION A POSSIBILITY

  "But now the possibility for legislation in the [new] Congress is real, because the number of people who will vote for strong legislation exceeds the number of people who would have voted for a tariff," Senator Charles Schumer, a Democrat, told a recent Congressional hearing.

  Some lawmakers believe that Beijing has undervalued its currency by up to 40 percent in order to boost its exports, and that this is a key reason for the US trade deficit that hit US$232 billion last year.

  Despite ominous signs of an escalating trade row, experts are not overly concerned.

  Trade frictions between big powers are "part and parcel" of bilateral relations and a full blown trade war between the US and China is unlikely, said Nicholas Lardy, an expert at the Washington-based Peterson Institute for International Economics.

  There is also little room for China to retaliate as Washington's actions are being undertaken through the proper channel -- the WTO -- with no guarantees that all the legal suits will end in US favor, Lardy said.

  NAYSAYERS

  "Contrary to popular opinion, this is not the beginning of a trade war," said Dan Ikenson of the Cato Institute, a libertarian think tank in Washington.

  He thinks some of the trade issues will likely be resolved in bilateral consultations within the next two months.

  The two nations are scheduled to hold a high-level "strategic economic dialogue" next month.

  "The stakes are simply way too high for these disputes not to be resolved amicably, and in a manner which puts the relationship on even firmer footing," Ikenson said.

  The US is China's largest overseas market and second-largest source of foreign direct investment while China is the fourth-largest market for US goods and remains the fastest growing major US export market.

  While legislators charge that the Bush administration has ignored China's trade violations over the past six years at the expense of US businesses and workers, administration officials point to the five-year transition period that China enjoyed before some of the WTO rules could be fully applied against the Asian giant.

  China joined the global body in December 2001.
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