ON THE USA's CONTINUING FEARS AND HOSTILITY TO CHINA

US anti-China rhetoric at danger level

By Benjamin A Shobert
Asia Time Online
22 June 2010

WASHINGTON - The US-China Congressional Committee (USCC)
this month held its most recent hearing on US-China
relations, specifically on "China’s Past and Future Role in
the World Trade Organization" (WTO). As Commissioner
Patrick Mulloy stated at the opening, "The purpose of
today’s hearing is not to second guess what Congress did 10
years ago. Its purpose is to look at the arguments made in
favor of China’s WTO entry by proponents and to consider
the results."

Considering the political environment in Washington, where
recent days have been marked by the most serious
bi-partisan efforts of the past decade to introduce
legislation that would impose new trade barriers on
Chinese-made goods, and increase pressure for

an upward revaluation of the yuan against the US dollar,
Mulloy’s comments are particularly meaningful.

The nature of politics in Washington can lull policymakers
to sleep: rhetoric over China's rise has been slowly
growing increasingly negative as a more specific set of
grievances over the past five years have coalesced. Most
advocates for economic integration with China have grown
used to (and perhaps even weary from) those who seem
fixated on the loss of opportunities related to China's
ascent.

But voices that were once easy to dismiss are now, in the
middle of an ongoing economic setback that at its best is
labeled a "jobless recovery", are becoming more politically
powerful, and insiders in Washington are beginning to sense
that this time it might actually have significant impact on
the economic relationship between the two countries.

During last week's USCC testimony, Senator Charles Schumer
(Democrat, New York) provided in written testimony a very
specific insight into the grievances of many Americans and,
as a consequence, the powerful politicians who represent
them: "China's policy of large-scale intervention in the
exchange markets and the significant undervaluation of its
currency also subsidize Chinese exports to the United
States and, at the same time, make US exports to China more
expensive. Thousands of US factories have been shuttered
and millions of jobs have been lost or displaced over the
past decade as a result."

He went on to share that, "There is no question that this
is what one might call a 'put-up or shut-up' moment for US
lawmakers. American jobs and wealth are flowing out of the
US, across the globe to China and other countries with
cheap labor, lax environmental standards, and no
compunction about flouting WTO rules to gain an unfair
competitive trade advantage. This has got to stop."

It would be a mistake to overlook the senator's comments,
or to simply mark them up to the traditional politics of
organized labor and Schumer's relationship with them. This
week, during a separate congressional hearing of the House
Ways and Means Committee, Republican Congressman Dave Camp
(Michigan), asked whether "enough was doing to push China
... on its egregious economic barriers" specific to its
currency manipulation, the country's "Indigenous
Innovation" policies, and ongoing intellectual property
compliance with WTO rules.

What both provide is, at the base of their comments, a
critical insight into the inner-workings of Washington's
political class. Whatever the heritage of those ideas,
which for several decades have knit together the two
countries, they are under strain as never before. To the
extent both sides of the aisle hold similar frustrations
about China's economic policies, DC will find a way to vent
the intensifying political pressure.

What remains to be seen is the form this political pressure
will take: on the table appears to be a handful of likely
options, most likely of which may be a set of
countervailing duties imposed on China for its currency
practices, the remedy presented by Schumer in his Currency
Exchange rate Oversight Reform Act of 2010 (S.3134). During
this week's House Ways and Means Committee hearing on
"China's Trade and Industrial Policies", chairman Sandy
Levin (Democrat, Michigan) said simply but forcefully " ...
China must change its ways". Straight-forward words
certainly, but important coming from an influential
congressman long known for his reputation of urging caution
and balance in America's relationship with China.

It would appear that, if politicians like Levin can win the
day, Washington's approach to China will incorporate more
than just a single-minded emphasis on the country's
currency policies. Specifically, Levin appears to be
working for a compromise that would take into account the
whole of Beijing's economic policy, what he and other
policy-makers understand to be a form of national
mercantilism.

As Levin stated, "There are other policies in China that
place US companies and workers at a disadvantage, often in
clear violation of China's WTO obligations. They are part
and parcel of the overall trend in China's approach to
trade ... the selective use of tax rebates to stimulate
certain exports; export restrictions on raw materials;
trade-distorting subsidies, discriminatory product
standards ... weak laws and weak enforcement of labor and
environmental laws; state-owned enterprises that
discriminate against US companies. All of these policies
have a common thread: they have the purpose or the effect
of tilting the playing field to favor Chinese companies and
against US companies, workers and farmers."

Senator Debbie Stabenow (Democrat, Michigan), provided in
testimony to the USCC panel her plan to introduce the
"China Fair Trade Act, legislation that will prevent
Federal taxpayer dollars from being used to purchase
Chinese products and services until they sign on to and
abide by the WTO Agreement on Government Procurement, which
will allow American companies to export into their
government markets." This sort of move, while it remains
uncertain as to whether it will be advanced in the House,
does represent the sort of escalation between two countries
that tends to indicate a looming conflict over trade that
could, given the present economy, too easily get out of
hand.

During last week's USCC hearing, Congressman Tim Ryan
(Democrat, Ohio), a long-time critic of China's currency
policy and one of the first to propose legislation
attempting to address the matter, echoed the concerns of
his colleagues but perhaps most importantly hinted at
deeper concerns which are too often glossed over by those
who suppose such critics want to simply hit rewind on the
global economy: "Several years ago, progress toward further
market liberalization began to slow and it became clear
that some parts of the Chinese government did not yet fully
embrace key WTO principals."

Against the backdrop of a general economic frustration in
the US, it is easy to miss that much of what lies beneath
Washington's concerns is not simply Beijing's economic
policy but a more general and caustic concern that how
China was anticipated to evolve and embrace global rule
sets and overall liberalize is not happening, which begs
the political question of whether the sacrifice American
workers are perceived to have made by opening their markets
to China has, in fact, been worth it.

Understanding what Washington is currently obsessed with
talking about, and separating it from what is actually
likely to get acted upon, is not an easy task. This
realization is essential when evaluating the likelihood of
actions such as those suggested by Schumer, Stabenow, or
Ryan to be implemented. Specific to the matter of China's
presence in the WTO, Alan Wolff, chair of the Committee on
Comparative Innovation Policies at the National Academies,
provided to the USCC during last week's hearing a reminder
that "The United States believed that bringing China into
the WTO would foster domestic economic reforms within
China, which would ultimately create a functioning large
and growing market for US goods and services ... Large US
headquartered multinational businesses shared this vision.
They saw China as a major market and a major source of
supply for all other markets including the United States."

This sentiment is perhaps the most powerful counterweight
to the building political frustration in Washington;
specifically, the interest of American business remains in
many ways to maintain the status-quo with China. Changes in
Beijing's currency will have the immediate effect of
changing costs for outbound exports from their
Chinese-based subsidiaries, possibly forcing costly
production relocations, and the even more dire possibility
of the Chinese market growing additionally difficult to
access and sell into.

It has been quite literally several decades since the
interests of the working class and the ownership class have
been so front and center in Washington as they are now. The
still-powerful pro-business lobby will push back against
bills like those mentioned earlier, but unless the American
economy begins to show additional life, even organizations
like the critical Business Roundtable may be ineffective at
limiting a political retaliation against China.

During last week's testimony, this was communicated most
eloquently by James Bacchus, formerly a two-term chairman
of the Appellate Body of the WTO and a former Special
Assistant to the United States Trade Representative in the
Executive Office of the President. "I worry when I hear
other Americans describe China as a 'threat' to the United
States," he said. "I am reminded at such times of the
warning of Thucydides in his history of the Peloponnesian
War - that a belief in the inevitability of conflict can
become one of the main causes of conflict. Trade disputes
between the United States and China are inevitable.
Conflict is not."

The recent USCC hearing on China's WTO compliance was
ostensibly about just that, but it quickly became the
tapestry for a broader conversation that is taking place
within Washington about whether China's growth has come at
too great a cost for Americans, and whether its policies
and practices will ever embrace the rough outlines of what
the US recognizes as a politically liberal environment.

This debate is growing in intensity, and holds the
potential to redefine the contours of the two countries'
relationship in ways that may prove as foundational as
China's first timid entry into free-market reforms in the
early 1980s. The stakes, for Chinese and Americans, have
not been any higher than they are now for decades.

Benjamin A Shobert is the managing director of Teleos Inc
(www.teleos-inc.com), a consulting firm dedicated to