U.S.-China Trade Ties Erode Amid Accusations

By Ariana Eunjung Cha
Washington Post Foreign Service
Friday, February 20, 2009

BEIJING -- The global financial crisis is bringing out the worst in the trade relationship between the United States and China.

After three years of largely friendly talks about economic issues, both in the past few weeks have blamed the other for the world's problems.

U.S. Treasury Secretary Timothy F. Geithner accused China of "manipulating" its currency, vowing in written testimony submitted for his confirmation hearing that the United States would act "aggressively" to remedy the situation. The U.S. Trade Representative's office, in a harshly worded and wide-ranging complaint to the World Trade Organization in December, alleged that China uses cash grants, cheap loans and other subsidies to illegally aid its exporters.

China, for its part, has bashed the "Buy America" program embedded in the just-passed stimulus package, calling it "poison to the solution" of the global economic crisis. At the World Economic Forum meeting in Davos three weeks ago, Chinese Premier Wen Jiabao, without naming the United States explicitly, blamed the financial crisis on unsupervised capitalism.

"The crisis has pushed the China-U.S. relationship to a flash point. From now on, it will either become more stable or more confrontational," said Mei Xinyu, a trade expert with the Chinese Commerce Ministry's research arm.

When Hillary Rodham Clinton arrives in China on Friday as part of her first diplomatic visit as secretary of state, she said she hopes to broaden the bilateral dialogue to include climate change and human rights. But it is economic cooperation that will be at the forefront of many people's minds.

Both the United States and China, the world's No. 1 and No. 3 largest economies, have railed about the dangers of economic protectionism, but so far both have been guilty, according to the other, of practicing it.

"While both countries have come to an agreement that trade protectionism shouldn't be practiced by any country, when it comes to the details -- maybe due to domestic reasons -- they may feel pressured toward it," said Jia Qingguo, the vice dean of Peking University's international studies school.

Li Wei, a researcher at the Chinese Academy of International Trade and Economic Cooperation, said "the purpose of 'Buy America' is clearly to kick out foreign competitors."

In the United States, industry groups are pushing for more action against China, saying it is trying to export its way out of the crisis by dumping cheap products abroad.

The latest figures, released in mid-February, show that the U.S. trade deficit with China hit at an all-time high of $266.3 billion in 2008, the worst imbalance ever recorded with any country. It came as the overall trade deficit shrank for the year and hit its lowest levels in six years in December amid depressed demand for imports.

U.S. steel and textile manufacturers have been especially loud in their call for the Obama administration to be more aggressive with Beijing. The U.S. International Trade Commission has imposed duties of 35 to 40 percent on some steel products from China -- imports hit an all-time high this fall -- to counteract Chinese subsidies. The textile lobby has accused China of increasing its share of the U.S. apparel market to more than 50 percent this year by using export subsidies. The Dec. 19 WTO petition filed by the USTR addresses some of these concerns; a WTO official said the complaint is still being reviewed.

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