China, U.S. Come to Trade Talks At Odds

By Ariana Eunjung Cha
Washington Post Foreign Service
Saturday, May 19, 2007

SHANGHAI -- On the eve of high-level economic talks in Washington next week, Chinese leaders are increasingly bitter about what they see as bullying behavior by the United States on trade issues, potentially complicating efforts to tackle disputes on such matters as technology exports and intellectual property.

In the span of three months this year, under the pressure of domestic politics, the United States moved aggressively against China for trade violations, filing two lawsuits and imposing steep tariffs on imports. The actions have so incensed China that Vice Premier Wu Yi, the leader of its delegation to next week's talks, apparently considered boycotting them.

On the surface, the Chinese are likely to play the role of grateful guests. Friday, in a slight concession to American arguments, they loosened controls on the value of their currency, the yuan. The Chinese are expected to bring with them $4.3 billion in high-technology contracts for American products.

But Treasury Secretary Henry M. Paulson Jr., Federal Reserve Chairman Ben S. Bernanke and the heads of nine Cabinet-level agencies are sure to encounter a more combative China when they sit down at the table this time. The Chinese are so mad there had been talk Wu might stay home to show "dissatisfaction and anger," said Xu Mingqi, an international economics professor at the Shanghai Academy of Social Sciences, a government-affiliated think tank.

Wu relented, however, and on Tuesday and Wednesday she will lead a delegation that includes 14 government ministers.

This will be the second session of the high-level "strategic economic dialogue" Paulson and the Chinese launched last year. The dialogue was supposed to be a feel-good forum at which leaders could discuss big issues in the countries' economic relations, moving beyond an intractable debate about the value of China's currency.

But in recent months, with antitrade sentiment rising in the United States and Congress threatening China with sanctions, the talks have taken on a new role, as perhaps the best forum for averting a trade war.

For years, the United States has opposed China's strict controls on the yuan, which has been allowed to rise 7 percent since July 2005 but which the United States says is still kept artificially low to give Chinese exports an advantage in the world market. U.S. officials have blamed the exchange rate for some of the ballooning trade deficit with China, which was $233 billion last year and $46.4 billion in the most recent quarter -- twice as large as the corresponding period last year -- according to the Department of Commerce, .

Yesterday, China, in a move it said would help control runaway economic growth, widened the band within which the currency can float, permitting a move of as much as 0.5 percent a day, up from 0.3 percent. At a news briefing, Alan Holmer, the Treasury Department's special envoy for China, said this was a "useful step" but that, in general, reforms were "not fast enough as far as the U.S. administration is concerned." The U.S. government has long pressed for a large revaluation of the yuan, perhaps 30 or 40 percent.

In the December session in Beijing, both sides walked away with a list of symbolic agreements, such as allowing the New York Stock Exchange and the Nasdaq Stock Market to open offices in China, and promising to work together on more commercial air travel between the two countries.

There was hope that broader cooperation was on the way, but a lot has changed in a few months.

On the American side, with Democrats in control of Congress and a presidential campaign gearing up, there's a growing impatience with the pace of economic reform in China and a slew of antiChinese trade bills pending.

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