US, China Trade Relations Hit Boiling Point


Image: DavidDennisPhotos/Flickr

The United States government has filed two WTO cases against China, heating up trade tensions between the two countries. The moves come just in time for the election season. From the New York Times:

“We are concerned, as are many of China’s trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited,” Mr. Geithner plans to say, according to excerpts of his statement released on Wednesday night by the Treasury Department. In his testimony, Mr. Geithner is not expected to rule out declaring China a currency manipulator, a finding that could lead to retaliatory trade measures. The administration has so far refused to take such a step, relying instead on persuasion, though with little success.

C. Fred Bergsten, director of the Peterson Institute for International Economics, a leading research organization here, told House lawmakers on Wednesday that a…(renminbi) increase over the next two to three years would create about 500,000 jobs. He said it would reduce China’s current account surplus by $350 billion to $500 billion, and the American current account deficit by $50 billion to $120 billion.

The United States should seek to mobilize the European Union and countries like Brazil, Russia and India to press China to realign the renminbi, and should seek W.T.O. authorization to impose restrictions on Chinese imports if it does not do so, Mr. Bergsten said.

The Chinese Foreign Ministry said Thursday that the pressure from the United States would not help resolve the currency issue and could even backfire. “I would point out that appreciation of the renminbi will not solve the U.S. deficit and unemployment problems,” a Foreign Ministry spokeswoman, Jiang Yu, said at news conference in Beijing.

The BBC explains the Obama administration’s policy with China:

The Obama administration has indicated that it plans to take a tougher stance with China on trade issues, including demanding that Beijing move more quickly to reform its currency system.

The two cases the US has brought at the WTO are a sign of that new approach. The first case concerns duties imposed by China on imports of specialist steel used in the power generation industry. China says they were introduced to prevent subsidised shipments from driving local producers out of business, but the US trade representative Ron Kirk has accused Beijing of protectionism. (“The two largest makers of such steel are Allegheny Technologies, based in Pittsburgh, and AK Steel, based in West Chester, Ohio,” according to the New York Times.)

The second complaint concerns the market for electronic payment systems in China, which is dominated by a single domestic firm, China Union Pay. The US says its providers are being excluded from the bulk of this market.

There’s also speculation that China is “indirectly holding down” the yuan by buying Euros (WSJ).

China’s reaction to US criticism of the yuan appreciation has been slow and tempered. Now that politicians–heavily lobbied by the credit card and steel companies blocked by China, I’m sure–are putting the heat on China, more sanctions and protectionism may result. China is in the position of power here, so I’m not sure how much any new trade barriers are truly going to benefit the American economy.