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U.S., China locked in trade disputes
By Ariana Eunjung Cha
Washington Post Foreign Service
Monday, January 4, 2010; A02
BEIJING -- Trade disputes between Beijing and Washington over exports of tires, chickens, steel, nylon, autos, paper and salt are multiplying and further damaging the already tense relationship between the two economic powers.
The Obama administration says it only aims to protect the country's rights, but the Chinese counter that the United States started the whole thing by launching an unprovoked attack.
The current tensions began in September, when the United States imposed a staggering 35 percent import fee on tires from China.
Economically speaking, the tariff was minor; it only applied to a couple of billion dollars in annual imports, less than 1 percent of the total annual trade volume between the two countries. But it infuriated the Chinese, who felt it was a political concession to U.S. labor unions rather than a legitimate punishment for something they did wrong.
The feeling was that "China should not just sit there and do nothing," said Lu Bo, a researcher with the Chinese Academy of International Trade and Economic Cooperation, a think tank under the Chinese Ministry of Commerce.
China fired back at the United States with a full arsenal of its own trade complaints.
As the world begins to emerge from the worst economic crisis since the Great Depression, there is growing concern that a rising tide of tit-for-tat protectionism is slowing the recovery.
Despite world leaders' repeated promises to minimize trade barriers, protectionist measures have spiked, according to a recent study by Global Trade Alert.
At least 130 protectionist measures such as state funds, higher tariffs, immigration restrictions and export subsidies are being planned by governments around the world, the trade analysts found. The World Trade Organization, in a report released in September, noted that many members largely had avoided the protectionist measures that exacerbated previous economic crises, but it still pointed to some "slippage." The WTO estimated that "anti-dumping" disputes (which involve accusations of predatory pricing by selling goods abroad below the price in one's home country or below the cost of production) will reach 437 this year -- more than double from 2008.
The European Union, for instance, may extend duties on leather-capped shoes from Vietnam and China for another 15 months. India banned toy imports from China for six months last year and recently levied duties on Chinese telecom gear. China last month imposed provisional duties on some Russian and U.S. steel products.
A further increase in trade disputes in the next few years is "inevitable," said Michael Pettis, a senior associate at the Carnegie Endowment for International Peace and a professor of finance at Peking University. While global demand is contracting -- export volume is estimated to be down as much as 9 percent for 2009, the biggest drop since World War II, according to the WTO -- every country is trying to "protect their share or increase their share," he explained.
"Policymakers in each of the major countries are quick to blame 'the foreigners' and say that they are only responding to aggressive behavior by others. . . . But every country can't be correct in assuming the problem is someone else," Pettis said.
Among the most contentious disputes are those between the United States -- the world's largest economy -- and China, the world's third-largest economy, whose total trading volume was $409 billion last year.
Carol Guthrie, a spokeswoman for the Office of the U.S. Trade Representative, said the U.S. "trade relationship with China remains strong, buttressed by consistent and frank dialogue, effective institutions, and global trade rules."
"Trade disputes are a normal part of a healthy, mature trading relationship," Guthrie added. "The United States has trade disputes with a number of major trading partners -- the European Union, for instance -- and still has healthy relationships because we have all agreed to work under certain rules. This is the case here, as well."
In the past, trade complaints were launched mostly by developed countries against developing ones. China turned the tables on its accusers last year by using the same relief mechanisms that had been used against it to launch its own probes and duties against countries it feels are hurting its interests unfairly.
China remains the biggest target of complaints; competing countries have passed 55 measures that hurt Chinese exports, according to GTA. The United States is second with 49 measures against it.
In China, the U.S. tire duties imposed in September struck an emotional nerve. They were seen as a move pandering to the United Steelworkers who had helped get President Obama elected, and as a violation of the U.S. president's promise to other G-20 leaders that he would avoid protectionist measures. On Internet bulletin boards, public sentiment about the United States turned ugly, and there were widespread nationalist calls for China to start dumping its vast holdings of U.S. Treasury bonds.
Zhou Wenzhong, China's ambassador to the United States, said the tire fee -- which was also widely criticized by Western scholars and media outlets -- represents "a very dangerous precedent."
Two days later, China accused the United States of predatorily "dumping" chicken products and auto parts into the Chinese market and warned that it could impose its own tariffs. Then, in October, China made good on that threat by hitting the United States with duties of as much as 36 percent on certain nylon exports.
On Nov. 4 and 5, the United States went on the offensive again -- slapping anti-dumping duties on Chinese-made steel pipe and launching two more probes of Chinese imports. These were focused on glossy, magazine-quality paper and several types of salts.
Barely 24 hours later, the Chinese announced they had opened an investigation into U.S.-made passenger cars. China accused U.S. automakers of evading vehicle import duties by bringing parts into China for assembly. If China ends up penalizing the Big Three automakers -- Ford, Chrysler and General Motors -- profit that Detroit is counting on from the world's biggest car market could shrink dramatically at a time when it is already struggling. Next, on Nov. 10, China said it would impose tariffs ranging from 5 to 35 percent on an industrial acid used in the production of nylon and medicine.
And on Dec. 10, China said the United States was dumping a type of steel used for power generation and ordered importers to pay penalty deposits that will be held pending the final results of their investigation. At the end of 2009, the United States imposed tough new duties on steel pipe from China.
Bai Shuqiang, a professor at the University of International Business and Economics in Beijing and who has represented the Chinese government at the WTO, insists that all these investigations are legitimate. "Signs of trade protectionism are emerging," he said, "but I think China's stance is still the same -- that it opposes trade protectionism and embraces free trade."
Researchers Wang Juan and Zhang Jie contributed to this report.