Trade talks with China at a juncture

(New York Times)
Updated: 2007-05-22 14:00


US Treasury Secretary Henry Paulson speaks during a news conference on Capitol Hill in Washington May 10, 2007.[Reuters]

WASHINGTON, May 21 -- In recent weeks, the Bush administration has negotiated furiously with China to secure some eye-catching new agreements to unlock Chinese markets for American goods. China, in response, has told the United States that it plans new purchases of $30 billion -- a shopping spree that dwarfs any China has gone on previously.

Now, on the eve of the "strategic economic dialogue" between senior officials of the world's fastest-growing and the world's biggest economies, the question is whether these steps will satisfy a Congress irate over a trade deficit with China that soared to $232 billion last year.

"Some people will look at this and say there is not enough progress," Treasury Secretary Henry M. Paulson Jr. acknowledged in an interview Monday, referring to the dialogue he started last year. "The key question is, Do we have more progress than we would have had otherwise?"

Mr. Paulson said that the dialogue had kept tensions under control even as the administration in the last six months challenged Chinese practices at the World Trade Organization and threatened new duties on imports.

While the talks this week are focused on long-term issues like urging China to adopt market-based economic and monetary policies, Mr. Paulson said, "I want to see specific accomplishments that are clear signposts that we're headed in the right direction."

He added that the accomplishments were likely to be in the areas of approving more routes for United States air passengers and cargo, granting financial services companies access to Chinese consumers and clearing the way for the sale of energy technologies, particularly clean-burning coal.

Since taking office a year ago, Mr. Paulson has led the administration's efforts to head off protectionist legislation against China in Congress, an effort that became harder when the Democrats won the election last year in part on promises to get tougher with American trading partners.

In December Mr. Paulson took a large delegation of cabinet members, along with Ben S. Bernanke, the Federal Reserve chairman, to Beijing to try to improve the tense economic relationship.

But administration officials acknowledge that their efforts have not produced many concrete results so far and that China has reacted with displeasure to plans in Congress to increase duties on Chinese goods or take other steps to curb Chinese exports and open Chinese markets.

If the dialogue does not produce progress, the administration fears that it will be difficult to restrain Congress. The administration argues that with exports to China growing faster than imports, there is more to be lost than gained from a trade war.

The signature development of the visit of Chinese cabinet members this week -- led by Vice Prime Minister Wu Yi, one of China's toughest trade negotiators -- is that the Chinese leaders will get a chance to look into the mouth of the tiger on Capitol Hill, where Congress seems to favor more confrontation over trade.

Mr. Paulson has arranged for the Chinese to spend a fair amount of time with Republican and Democratic leaders to understand something that American officials say the Chinese have a hard time realizing: that Congress has its own priorities and approaches that the administration cannot always control.

"I've explained to them that Congress legislates and there will be trade legislation in Congress," Mr. Paulson said. "I've also said that the Congress is, to a large extent, reflecting the views of the American people who don't believe that the benefits of trade are shared evenly or fairly."

On Friday, in a step apparently aimed at criticism of its economic practices, China's central bank announced that it would begin allowing the country's currency, the yuan, to fluctuate more during each day's foreign exchange trading. But it rebuffed the West's demand for a more steady rise in the yuan's value.

The United States says that by keeping the value of the yuan low, China is trying to make the cost of its exports low and the cost of its imports high. Congress is threatening to retaliate with higher duties on Chinese goods if China does not change its currency practices.

Senator Charles E. Schumer, the New York Democrat who is a strong critic of China and its currency practices, said purchases of goods ahead of Ms. Wu's arrival would not help either. "Instead of changing what they buy, they ought to change the rules by which they play," he said.

The House speaker, Nancy Pelosi, another longtime critic of China, plans to raise political as well as economic issues, a spokesman said. These will include matters like human rights abuses and China's rejection of sanctions against Sudan over the civil war in Darfur.

But Representative Charles B. Rangel, the New York Democrat who is chairman of the House Ways and Means Committee, said that Democrats should be careful to speak honestly with the Chinese without damaging Chinese-American relations further.

"It does represent a diplomatic challenge that I'm not used to," Mr. Rangel said. "My job will be to persuade the Chinese that the executive branch operates in a different manner from Congress without disrupting our diplomatic relationships."

In recent months the Commerce Department and the United States trade representative have adopted tough actions to get China to stop subsidizing exports and to crack down on piracy of DVDs and other items. There were rumors in Washington that the Chinese were so angry that they considered canceling the dialogue.

Mr. Paulson said that in his many conversations with Ms. Wu, he never heard any word about China's not coming to Washington this week.

This is a sensitive time for Mr. Paulson, a respected Wall Street figure before he came to the Treasury last year. Although he has seized control of overall China policy, he has ceded decisions on retaliatory actions and legal challenges to the Commerce Department and the trade representative's office.

In the last month, he has worked with Susan C. Schwab, the top trade envoy, to broker a deal with Democrats to win Congressional passage of bilateral trade pacts with South Korea and three Latin American countries.

But neither he nor Ms. Schwab has succeeded in getting agreement on a global trade deal, which they say is the administration's top international economic priority.

In another small conciliatory gesture to the United States, China's finance ministry announced that it was raising export taxes on certain low-value steel products and reducing certain taxes on a short list of imported goods. While it is unusual for a country to impose export taxes at all, Beijing officials have been publicly worried that too many steel mills are consuming enormous amounts of energy and scarce water to produce low-quality products, and have been warning for months that increased export taxes were likely.

Liang Hong, an economist in the Hong Kong office of Goldman Sachs, said that raising export taxes and reducing import taxes would have the same effect on trade as an appreciation in the yuan. But the effect is likely to be small because of the narrow range of goods covered.



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