Bush pressured on China trade
By Mark Drajem (Bloomberg)Updated: 2006-11-13 15:16
The new Democratic majorities in Congress are likely to increase pressure on President George W. Bush over the record trade deficit with China, pushing the administration to take a harder line with the fastest-growing major economy.
"We need a much more activist, vigorous trade policy," Democrat Sander Levin of Michigan, the probable chairman of the trade subcommittee in the House Ways and Means Committee, said in an interview. "On China, we need a much more vigorous strategy aimed at their currency."
More than two dozen measures aimed at the record U.S. trade deficit and what lawmakers call China's unfair undervaluation of its currency were blocked by Republican leaders over the past two years.
With Democrats controlling the House and Senate next year, they will be in better position to push these measures forward.
Representative Nancy Pelosi of California, the likely speaker of the House, pressed Democrats to oppose the Central American Free Trade Agreement last year and wrote Bush last month urging the administration to file a complaint at the World Trade Organization over copyright piracy in China. Pelosi opposed legislation to allow China to join the WTO in 2000.
Senator Harry Reid of Nevada, the probable next Senate majority leader, also voted against China's entry into the WTO and against Cafta.
The number of members in the next House who are opposed to new trade agreements and favor tougher enforcement of trade laws will increase by 27, according to Public Citizen, an activist group opposed to further trade liberalization.
Complicate the Agenda
Even if Bush vetoes Democrats' trade measures, they will complicate the agenda for the administration, which has tried to smooth relations with China, and for U.S. companies such as Ford Motor Co. and Wal-Mart Stores Inc. that use China as a low-cost source of goods.
"The administration used to be able to shape the congressional approach on China, but that's gone now," said Greg Mastel, former trade counsel to the Senate Finance Committee and now a trade lawyer at Miller & Chevalier in Washington. Bush "will now be in a defensive crouch when it comes to China."
The result is likely to be new cases at the WTO, tougher rhetoric from the administration and new legislation aimed at preventing what lawmakers call unfairly traded Chinese imports, Mastel said.
Trade Deficit
The U.S. trade deficit has reached a record each of the past five years and is on track to exceed last year's $726 billion by 8 percent. The monthly trade deficit was $64.3 billion in September, led by a monthly record trade deficit with China, the Commerce Department said last week.
The Bush administration counters that it has been "very aggressive" with China over its subsidies to exporters and barriers to American-made products.
"We will continue to make sure that to the extent there is a bilateral trade deficit with China, it can be explained through fair trade, not unfair trade," Trade Representative Susan Schwab said in an interview.
Levin and Schwab both say they want to restore bipartisan support for open markets. Yet, there are differences. "The question is whether you shape the terms of trade, or just let it roll," Levin said.
The trade deficit and falling employment for manufacturers were major themes for some Democrats, setting them apart from the views of former President Bill Clinton, who embraced global markets and persuaded Congress to pass the North American Free Trade Agreement.
Central Issue
Candidates such as Ohio Senator-elect Sherrod Brown and North Carolina Representative-elect Heath Shuler made criticism of China and the current U.S. trade strategy keys to their campaigns this year.
"Every single stump speech began and ended with speaking about fair trade," Schuler said of his campaign in a North Carolina district heavily dependent on textiles.
Brown, who as a member of the House led the opposition to Cafta in 2005, predicted "major fights" in Congress over trade next year. He said his first priority on China is a measure proposed by fellow Ohio Representative Tim Ryan.
Ryan, a Democrat, proposed allowing companies to seek duties on Chinese imports to compensate for what he calls the subsidy Chinese manufacturers get from the country's undervalued currency, the yuan. A weak currency makes China's products cheaper on world markets.
Still Undervalued
The yuan, a denomination of the renmimbi, has appreciated an additional 3.1 percent since China reworked its currency peg in July 2005 and revalued it by 2.1 percent. Many U.S. economists and lawmakers say that still leaves it as much as 40 percent below fair value.
A bipartisan group of 178 lawmakers signed on to Ryan's measure, and small manufacturers called it crucial to lowering the trade deficit with China. The legislation never came up for a vote.
Ryan said he will push it again next year. ``From a purely political perspective, this is a good issue for us to reach out to these small business owners,'' Ryan said in an interview.
Even before the election, it was likely there would be legislation aimed at China next year. Senators Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, proposed a measure earlier this year to apply tariffs on Chinese goods entering the U.S. They dropped it after obtaining a pledge from the leaders of the Senate Finance Committee, to work on a new measure prodding the Chinese on the currency issue.
Chinese View
China said the elections won't affect its relations with the U.S.
"The mid-term elections are a U.S. internal affair," said Jiang Yu, a Chinese foreign ministry spokeswoman. "We hope both U.S. parties will play a constructive role in promoting global peace, stability and prosperity."
For U.S. businesses that use China as a source of low-cost parts or as a manufacturing base, legislation from Congress presents a new worry because it threatens to aggravate the already tense commercial relations between the two countries and undermine efforts of Treasury Secretary Henry Paulson to begin a dialogue with the Chinese.
"We cannot disengage from the world," said Terry McGraw, chief executive officer of New York-based McGraw-Hill Cos. Inc. and chairman of the Business Roundtable. "Competitive forces are moving ahead, and we have to be a part of that."
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