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.

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