Analysis: U.S. Lacks Leverage on Trade

The Associated Press
Friday, April 21, 2006; 7:58 AM

WASHINGTON -- Once again, President Bush had a difficult time wresting concessions from Chinese President Hu Jintao. And for good reason.

Bush may be the leader of the world's only superpower, but when he talks to the Chinese, it's like discussing an overdue loan with his banker. There's not much leverage.

The summit on Thursday was Hu's first visit to the White House since he became China's top leader three years ago. But he and Bush have met five times in just the past year, including a trip Bush made to Beijing in November.

At each of those meetings, the list of U.S. trade demands has been the same: China must stop unfairly depressing the value of its currency to gain trade advantages; it must halt rampant copyright piracy that is costing American companies billions of dollars in lost sales, and it must open its markets wider to U.S. exports.

The urgency of those demands has grown as America's trade deficit with China has soared; the trade imbalance hit another all-time high last year of $202 billion.

That deficit, which represented more than one-fourth of America's record imbalance with the world in 2005, has sparked growing unrest on Capitol Hill and prompted a spate of bills to penalize China unless it halts trade practices that critics blame for contributing to the loss of nearly 3 million manufacturing jobs since Bush took office in 2001.

With an eye toward the November congressional elections, the Bush administration has stepped up its own rhetoric. But so far the tough talk has produced few results.

Hu's comments during his half-day summit with Bush failed to go farther than promises he has made before. The biggest disappointment came in the area where the administration had once held the highest hopes, that China would commit to moving faster to allow its currency to rise in value against the dollar. A weaker dollar against the yuan would make American goods more competitive against Chinese products.

But the blunt reality is that the Bush administration has little leverage to make China do more. Since China joined the World Trade Organization in 2001, the United States can no longer threaten to impose unilateral sanctions as the Clinton administration threatened to do in the mid-1990s in a copyright piracy fight of that era.

The United States can bring WTO cases against China as it did last month in a dispute over auto parts. But on currency manipulation _ the area that promises to make the biggest difference in reducing America's trade imbalance _ experts say the United States would have slim chances of prevailing before the WTO, in part because no country has faced those charges before.

Members of Congress are pushing legislation that would slam all Chinese goods with penalty tariffs of 27.5 percent if China does not move faster to allow its currency to rise in value. But such a draconian measure would basically penalize American consumers who have grown to like the low prices offered by a flood of Chinese imports of clothes, athletic shoes, toys and televisions.

"It's very easy to talk about limiting imports of bedding or shoes or whatever, but once you do it and prices shoot up, then you will get a backlash," said Gary Hufbauer, a trade economist at the Institute for International Economics, a Washington think tank.

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