U.S. trade thaw may leave China out in cold

September 30, 2010

The retaliatory China currency bill passed in the U.S. House helps brand this Congress as one of the more protectionist in years. The next one might switch gears and embrace trade by passing several stalled pacts. But Beijing shouldn’t expect that to translate into a friendlier Washington.

A companion bill in the Senate also meant to pressure China to allow a faster rise in the yuan is unlikely to succeed. And it would probably be vetoed by President Barack Obama if it did.

Yet the overwhelming vote in the lower chamber does reflect a further fraying of the free trade consensus. It’s not just frustration over the weak yuan policy, blamed for costing U.S. jobs. Congress also has failed to ratify trade agreements signed with South Korea, Colombia and Panama. Those deals would increase American exports by an estimated $12 billion a year. That may be just a small drop in U.S. trade, but would still be a big help for the likes of Boeing , Caterpillar and Oracle in a weak economy.

Enough pro-trade Republicans might enter Congress come November to pass the three deals. The political turnabout could be particularly head-snapping if the GOP was to actually retake the House. Chairmanship of the key trade-related Ways and Means Committee, for one, would shift from a Big Labor-backed Democrat to a Republican who has already pledged to make the outstanding trade agreements a top priority.

The GOP is less likely to take the Senate. But Max Baucus, chairman of the Senate Finance Committee, is a free trade supporter. And the new ranking Republican would be Orrin Hatch, considered more supportive of trade than his predecessor, Charles Grassley.

But there’s common ground when it comes to China. Trade advocates in both parties are coming together on the idea that Beijing needs to be pressed harder on the currency issue, as well as on market access. The latter also resonates with U.S multinationals, traditional members of the open trade lobby. And the Obama administration will probably continue to file anti-dumping and countervailing duty cases against China at the World Trade Organization.

None of this amounts to a trade war. But the risk is that another year of high U.S. unemployment pushes politicians to ratchet tensions to a level that unnerves markets and business.

Comments

Protectionist? I thought the governments main job was to protect the American people. It really bothers me that global industry has twisted the word and the deed as a bad thing. I think globalization in the biggest of pictures is a good thing. Just read Greg Easterbrook’s book Sonic Boom. But I’m also tired of hearing this trip of protectionism. We need a bit more of it. For the last decade big business, as they off-shored our jobs, has promised that things will get better, not worse. They lied. Just like their politician flunkies. It made no common snce then and still doesn’t. In the last decade the American rich are far richer, and the poor are poorer. The gap is wider than it’s ever been and still growing. When was the last time we had a jobs report with growth of over 200,000? There is NOTHING that indicates that we will see this level of job growth ever again. We probably will, but it may be a generation or two. Again for all you extreme right/left/liberal/conservative labels, Globalization is good, just don’t let it destroy your neighbor. We didn’t elect people to help China, India and the third world countries prosper. We elected them to ensure we continue to. Obviously without some level of protectionism, the average American we will continue to decline. For Pete’s sake we’ve heard this crap for ten years.

Posted by tmc | Report as abusive
 

This politically short-sighted policy akeen to protectionism – at its best- will not only backfire but constraint relations with mainland China.

Free trade policy implicitly demands transparent competition under WTO rules.

Yet WTO has not been asked by US to challenge Chinese currency manipulation – WHY?

Posted by hariknaidu | Report as abusive
 

America needs its manufacturing base and for that we need to have a clear path to high manufacturing technologies. Mr Pethokoukis is writing this article after starting with the high-school newspaper then to the university news and then making his way up to Reuters. Same thing for manufacturing a machinist starts making toasters then hydrauic parts and could end making parts for a satelite. The problem is that all the starting path is in China.

Posted by axiom321 | Report as abusive
 

This bill is not a measure of “protectionism” but is a healthy measure of “regulated free-trade”.

Unregulated free-trade never brings prosperity but only recession.

We’ve experienced the perils of unregulated free-trade where business just takes our money by selling products, takes the unregulated tax-breaks only to create offshore jobs and sell more products. It doensn’t really result in any of our prosperity.

I think this administration is finally showing some backbone in standing up to the lure of cheap-goods at the constant-expense of local prosperity.

Posted by Mott | Report as abusive
 

Of course US multinationals will rhetorically support increased market access regardless, even if a country is already widely open. GM already has the largest market share in china, larger than any of our “allies” such as Japan, S.Korea, or Europe. In China you see a continuous presence of American (and other foreign) companies everywhere selling their goods. In the US you’re lucky if a citizen can name even ONE chinese company. And these multinational company sales are perhaps often not publicly known: a friend of mine was relocated to Asia to work on shampoo sales for P&G and told me it’s a secret but P&G makes more money selling shampoos in china than it does in the US, and that was 15 years ago! I’m sure if you ask P&G they will publicly state the market is restricted and they will support demands for greater access.

Posted by mgunn | Report as abusive
 

If China revalue its currency, it will lose all its export markets; if it keeps the exchange rate of its currency as it is and allows the US to impose whatever tariff it likes on Chinese products, it will lose a large part of the US market but will keep all its other export markerts.

What is the percentage represented by the US market? Let us assume it is 30% and as a result of the imposition of tariffs, it loses 75% of that market. There still remains the rest of the World market plus the small remnant of the US market.

China will definitely be better off if it does not revalue its currency and allow the US to impose tariffs than if it revalues its currency.

Moreover, even though it might lose 75% of its usual US market, a large amount of the products will flow to the US indirectly via third countries.

Conclusion, China will not revalue its currency.

From the view point of the US, the imposition of tariffs on Chinese products will deflect imports from China to another country such as Vietnam; in which case the external deficit will remain the same and will require another sanction on Vietnam.

Posted by Jeanmichel | Report as abusive
 

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