Trade Offensive

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Thursday, April 12, 2007

AFTER SIX years of relying on quiet diplomacy to resolve trade issues with China, the Bush administration has abruptly shifted to a more aggressive strategy. On Tuesday the U.S. trade representative filed two complaints at the World Trade Organization in Geneva, both related to the sale of American books, music and films. That action followed by less than two weeks a Commerce Department decision to impose tariffs on imports of Chinese paper. And that followed another WTO case filed in February, which charged China with providing illegal incentives to exporters.

The flurry of punches appears intended to force some Chinese concessions on long-standing disputes, to stave off more drastic measures by Congress and to persuade Democrats to compromise with the administration on other trade issues -- notably pending free-trade agreements with South Korea and three Latin American countries. The price is some considerable bending of the administration's professed free-trade principles and the risk of a Chinese backlash that could affect not only trade relations but cooperation on strategic issues such as North Korea's nuclear program. It might be worth it if the hoped-for payoff came through. History and present politics suggest it won't.

The most substantive and least unprincipled of the administration's measures are the intellectual property cases filed Tuesday. China is the world's worst offender when it comes to the illegal copying of American DVDs; Hollywood estimates that it lost $244 million to piracy there in 2005. By filing complaints with the WTO, the United States is employing an established multilateral mechanism that will allow for negotiations and a lengthy adjustment period by China if it loses the case. The question is one of effectiveness: The main problem is not Chinese law but the enforcement of it. It's doubtful that a WTO case will cause Chinese police to become more aggressive or successful in shutting down the counterfeiters.

The paper tariff addresses a much smaller problem -- total exports of Chinese glossy paper to the United States are equal to one-tenth of 1 percent of China's contribution to the U.S. trade deficit -- and is considerably harder to justify. Acting unilaterally, the administration set aside a 20-year-old policy of not attempting to target subsidies in state-run economies such as China's. Meanwhile, by giving in to the pressure of U.S. paper producers, the administration opened the way for a parade of copycat complaints by steel manufacturers and others. If they are not resisted, the result will certainly be a damaging trade war, with most of the costs paid by U.S. consumers.

The administration's embrace of trade confrontation with China accompanies multiple concessions to congressional Democrats on labor and environmental provisions of the pending free-trade agreements. Such protectionist pandering was used in President Bush's first term to help win congressional approval for trade negotiating authority, which will expire in June unless renewed. But while first-term steel tariffs damaged the economy and U.S. credibility in trade talks, there was not much long-term benefit -- there have been no multilateral trade agreements in the Bush presidency. Given the escalating Democratic resistance to constructive compromises on trade, it's doubtful that this round of China bashing will yield much, either.


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