U.S.-China Trade

When: June 17 and 18

Where: US Naval Academy - Annapolis, MD

Who: Co-Chairs US Treasury Secretary Henry M. Paulson, Jr. and Vice Premier Wang Qishan

Why: To strengthen and deepen the bilateral economic relationship through actions to:

• raise questions
• seek consensus
• implement results
• prevent trade protectionism and conservatism from hampering the trade cooperation

What: An overview of China and the US coming to the table to discuss the following areas:

1. Macroeconomic Cooperation and Financial Services.  The countries pledge to work together toward sustained growth, stability in price and financial systems, and agreed to continue a collaborative approach to sharing information on issues of mutual interest.
2. Investment in people and Product Quality and Food Safety. Agreed the need to open up communication regardingt mitigating economic risks associated with aging populations in both countries, and to use this as a platform for investigating ways to provide better healthcare and retirement services. Bilateral efforts to continue activities determined at SED III for product safety on an ongoing basis.
3. Cooperation on Energy and the Environment. Mutual understanding of the importance of cooperating to address challenges. Both countries expressed the desire to strengthen commitments to energy and the environment.
4. Trade and Competitiveness. Challenges of trade were discussed, as well as actions that would support each nation’s economy within the larger picture of globalization.
5. Investment. China and US came to an agreement on a series of actions that will be taken to create a mutually beneficial investment path for and between both.

This CFR article helps tally the stance of frontrunners on US policy toward China.

  
Obama vs. McCain on:

The best engagement strategy.

BO. In a more outward assessment, O feels strongly about putting some teeth behind the words of the next American administration, and has been quoted saying:

In Asia, the emergence of an economically vibrant, more politically active China offers new opportunities for prosperity and cooperation, but also poses new challenges for the United States and our partners in the region.  It is time for the United States to take a more active role here – to build on our strong bilateral relations and informal arrangements like the Six Party talks.  

O’s focus is to establish and showcase other alliances and potential partnerships (i.e. North Korea) and bring them to the table for multi-party talks to encourage China’s hand. O approaches Sino-American relations cautiously, stating that China is “neither our enemy nor our friend,” adding “. . . we have to make sure that we have enough military-to-military contact and forge enough of a relationship with them that we can stabilize the region.”

JM. Shares a rather conservative approach with Obama, on growing the US’ relationship with China. M has reportedly backed US policy that is quoted to “hedge” against China’s growing global influence. “That doesn’t imply an effort to oppose China’s emergence as an influential power, but it does mean maintaining our military presence in East Asia, strengthening our alliance with Japan and our relations with other Asian countries, and working through groups like the APEC forum to further American interests and values.”

One China.

BO. In response to the March 2008 election of Taiwanese President Ma Ying-Jeou, O expressed hope that China would respond ”in a positive, constructive, and forward-leaning way,” and that China should mirror Taiwan’s promised non-confrontational approach, coming to the table on cross-strait relations “with good faith and progress.” Specific suggestions to improve the relationship between the two countries included the reduction of China’s military deployment in its southeast region, and affording Taiwain with “greater international space” in the World Health Organization. 

JM. Fortified the current Administration’s stance on One China, throwing his full weight behind Taiwan. In response to the island’s 08 Presidential campaign, M was quoted as celebrating this milestone as “testimony to the press freedoms, democratic process and the rule of law the Taiwanese people have worked so hard to build,” adding that the election was “a fine example for the region.”

An open, public hearing is being held by the US-China Economic and Security Review Commission* in Washington on May 20, 2008. The topic of the hearing is “China’s Proliferation Practices and the Development of its Cyber and Space Warfare Capabilities,” and seeks to collect and share information from academic, industry, and government expertise to identify and determine economic and security impacts occurring as a result of the US’ bilateral trade partnership with China.

This fifth hearing in a series of public hearings will cover the following activities taking place in China:

• proliferation activities
• growing cyber space activities and capabilities
• growing presence and capabilities in outer space

_____________________________________________________
* The Commission is mandated by Congress to investigate, assess, evaluate and report to Congress annually on “the national security implications and impact of the bilateral trade and economic relationship between the United States and the People’s Republic of China.'’

[Christoper Padilla by Al Diaz for the Miami Herald]

In 2000, under the direction of the Clinton Administration, the US found itself at a critical juncture for decision: further integrate China into the global economy, or throw away decades spent building a trusting relationship?

Now, with the deepening bilateral trade deficit, the US finds itself at a similarly critical junction in 2008, under the Bush Administration. January 30, 2008, Under Secretary of Commerce for International Trade Christopher Padilla spoke in DC on “Economic Engagement with a Rising China.” Padilla relayed that moving forward, the US will continue to carefully monitor engage China:

 “Here in the United States, support for engagement does not mean blindness to the enormous challenges resulting from China’s economic rise. Just as the world watches closely when the United States holds an election or the Federal Reserve makes decisions about interest rates, it is appropriate for Americans to watch the hints that China is backing away from open trade and economic policies.”

To summarize the challenges the US faces in maintaining its economic relationship with China:

1. Neutralizing the effects of Chinese policies favoring Chinese national firms over foreign firms, an example being the “Anti-Monopoly Law.”
   
2. China’s (lack of) regulatory structure, from which piracy, counterfeiting, and the production of unsafe products are growing; the effects of which, Padilla has personally felt: “My own dog had been eating some of the pet food contaminated with melamine from China.”
   
3. Economic imbalances, such as China’s capital accumulation, which hinder trade relationships with other countries.

The US’ three-pronged economic strategy (“dialogue with intelligent use of leverage”) to engage China:

1. Continue to use the JCCT and SED as vehicles for bi- and multi-lateral dialogues. Upping-the-ante by reigning in trade allies Japan and the EU will not only put some teeth behind Washington’s words, but ensure that its efforts are not being undercut by backhand third-party trade deals.
   
2. Leverage the WTO’s dispute settlement system. Outsourcing the gritty details of how issues such as the protection of intellectual property rights, discriminatory taxation systems, and market access are resolved will really allow us to focus on further engaging China positively.
   
3.  Rigidly enforce US trade remedies, in response to issues such as dumping and government subsidies.

Striking a balance between preemptively employing punitive measures to isolate China and risk trade retaliation, and failing to stand its ground on progress that has been made, the US’ strategy is to avoid “pushing China in the wrong direction” by pulling it in the right one.

January 17 and 18, China and the US held the third round of the Strategic Economic Dialogue in Beijing. 

 The SED is a cabinet-level series of summits began by President Hu Jin Tao and President George W. Bush in August, 2006 to address and smooth over Sino-American disputes such as those surrounding product safety and climate change.

The mid-January two-day dialogue was co-chaired by Chinese Vice Foreign Minister, Dai Bingguo and U.S. Deputy Secretary of State, John Negroponte. Though scheduled to exchange dialogue on steady-state matters such as ensuring the longevity of US-China relations through trade, the timing of this SED round served as a convenient platform to address one front-burning issue gaining steadfast momentum: Cross-Strait relations.

On the heels of Taiwan’s parliamentary elections (held January 12), many saw this event as an opportunity for Beijing to dually:

1) Re-iterate to US the need to restrain Taiwan’s calls for independence. 
2) Send the message to Taiwan that US-China ties are being strengthenedDespite analyses that Beijing has accelerated activities (below) to alienate Taiwan prior to its elections, it seems China’s efforts will ultimately have little impact over the election, as the Taiwanese seem to be voting toward domestic, economic, and social issues — and reportedly see little difference between the DPP and KMT, China’s preferred opposition.

China’s ”activities” :

• Playing its contacts (foreign government officials, business leaders, academics, researchers) to 
  China’s expectation that Taiwanese President Chen Shui-bian will leverage the election to declare independence with the 2008 Olympics in sight. (China is described as stating it would have “no choice but to respond to preserve the territorial integrity of China,” compelling several governments to express concern and back-up the bid to preserve the Cross-Strait status quo.)
• Wooing Taiwan’s remaining diplomatic allies. (With Malawi as an addition, it was reported Taiwan’s foreign minister was left sitting in South Africa after having his visa denied without prior warning)
• Blossoming ties with the Marshall Islands, and Japan. (Oil and gas can buy friends)
• And now, SED III. (Strategically-placed maraschino cherry)

Conclusion (SED III). Negroponte was swift to jump on the wagon, firmly backing One-China, citing the UN membership referendum  . . .  the two sides agreed to look forward to common interest and strengthened cooperation at the Beijing Olympic Games, tra la la.) SED IV will take place later this year, on US soil. We’ll likely be seeing much more on The Motherload, Cross-Strait.

Standby!

The FPA’s Great Decisions 2008 program’s television series broadcasted on PBS offers a show featuring US-China Trade, and summarily introduces a number of issues affecting the global economy and Sino-American relations:

• Agricultural trade. How do China’s geographic, agricultural, and environmental characteristics uniquely position the US to enjoy a mutually beneficial trade relationship with China?
• Manufactured goods. How can the US ensure it remains competitive in this industry alongside China’s growth? How do factors such as foreign investment and technology development make this a fluid relationship?
• Product quality. What are the nation-specific and collective responsibilities of the US, China, and other nations with leading economies in setting and complying with product quality standards?
• Intellectual property rights. How can China ensure it continues to make progress in remaining current with, and enforcing intellectual property laws? What are socio-economic drivers potentially elevating this issue to become a higher priority in China’s trade practices?
• The EU’s economic interest in China. Does the EU’s interest in trade with China undercut US efforts to accomplish bilateral agreements on issues such as use of energy? What are some feasible solutions that can accomplished through plural-lateral discussions?

For more information, visit FPA’s China Trade program and resources here.

China’s Three Gorges on the Yangtze River

With measured holiday celebrations by Americans this year, the US finds itself in a thick and thorny growing trade deficit with
China. Recent reports by the US Commerce Department that overall trade deficits have declined in the past two consecutive quarters may do little to assuage Congress members, who continue to push for punitive action against China for currency manipulation to leverage its trade surplus. To many, a more realistic metric of this damage is better understood when translated into an American loss of more than 1.9 million manufacturing jobs since 2000. An even bleaker truth is illustrated when comparing US-China exports to imports:

We export cotton, we import clothing. We export hides, we bring in shoes. We export scrap metal. We bring back machinery. We’re exporting waste paper, we bring back cardboard boxes with products inside them.  

In stark contrast, Europeans are busying themselves with preparations to contract with the PRC for nuclear reactors and Airbus passenger jets amounting to nearly $30 Billion USD.

The US and China engaged in the third session of the US-China Strategic Economic Dialogue (SED) hosted in Beijing, to make progress on trade discrepancies hindering its relationship. Key issues of focus included food and product safety, energy and the environment, and transparency. Echoing US concerns during this session were the EU, Japan, and the WTO.

With its rising tally of unflattering trade practices ranging from unsafe toy production to negligence of intellectual property rights, China’s impulse to shake its finger at protectionism to save face comes as no surprise. US Commerce Secretary Carlos Gutierrez called-out Chinese trade malpractices during USSED III as he beckoned, “I would have to assume that the brand ‘China’ is very important to the Chinese.”

Warning notes were sounded as Chinese Vice Premier Wu Yi cautioned, “There have been some disharmonious notes in China-US relations this year. The inclination to politicise (trade) issues has increased. . . Trade restrictions, and protectionist measures, can only hurt both sides”

Optimists maintain that US-China trade relations will find common ground in opportunities to honor their commitments to reducing greenhouse gas emissions and energy use for economic output. As Henry Paulson, Secretary of the Treasury projects, “The environment is an area that is “easier to cooperate on. It’s something the Chinese have common ground with members of Congress on.”