WASHINGTON (AP) – President Bush is hoping that a negotiating team crammed with administration luminaries can produce better results than previous efforts in persuading China to help restrain a burgeoning U.S.-China trade gap.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke will lead the team to Beijing next week for two days of talks covering a wide range of economic issues confronting the two countries.
The Administration planned to start making its case Friday with a briefing on what U.S. officials see as China’s failures over the past five years to live up to market-opening commitments it made when it joined the World Trade Organization in December 2001.
In addition to Paulson, the U.S. team will include four other members of Bush’s Cabinet: Commerce Secretary Carlos Gutierrez, Labor Secretary Elaine Chao, Energy Secretary Samuel Bodman, and Health and Human Services Secretary Mike Leavitt. U.S. Trade Representative Susan Schwab and Stephen Johnson, the head of the Environmental Protection Administration, will also be on the trip.
The new high-level talks, dubbed the Strategic Economic Dialogue, were announced in September. Since that time Paulson has been busy trying to lower expectations, emphasizing that he sees this effort as the beginning of a long-term discussion with the Chinese rather than pursuing quick fixes.
“One of the things I am trying to fight is short-termism,” Paulson told the Economic Club of New York recently. “I happen to think we can make progress by having discussions that are more strategic and longer-term oriented.”
But with America’s trade deficit with China on track to surpass last year’s $202 billion, which had been the largest imbalance ever recorded with a single country, it is not clear whether critics of the Administration’s trade policies will be satisfied to give Paulson much time, especially since some of the toughest complaints are coming from Democrats, who will be in control of both the House and Senate next year.
“I think Paulson is taking a very risky course. He is raising the stakes by taking such a big and powerful group with him,” said Nicholas Lardy, a China expert at the Peterson Institute for International Economics, a Washington think-tank.
Paulson held a series of meetings this week with major U.S. interest groups designed to get their input. The National Association of Manufacturers (NAM) stressed that their top priority is pressuring China to deal with its currency, which American companies believe is undervalued by as much as 40 percent, which widens the trade deficit by making China’s goods cheaper and more attractive in the United States and American products more expensive in China.
China announced in the summer of 2005 that it would let its currency rise against the dollar, but since that time the yuan has appreciated in value by only 5.8 percent.
Frank Vargo, NAM’s vice president for international trade, said the yuan needs to rise in value at a faster pace to keep protectionist pressure from building in the new Congress. He said progress also was needed in cracking down on widespread Chinese piracy of American products from movies to computer programs and also on removing other Chinese trade barriers.
Bernanke, who has been enlisted to give a speech on China’s economy at the Chinese Academy of Social Sciences, has been making the point that it is in the best interests of the Chinese to allow more flexibility in the yuan.
For now, members of Congress appear willing to give Paulson’s new dialogue time to show results.
Sens. Charles Schumer, D-N.Y., Lindsey Graham, R-S.C., have shelved legislation that would have imposed 27.5 percent penalty tariffs on all Chinese imports to America. But the two senators have said they will put forward new legislation next year unless China moves faster on the currency issue.
“If China doesn’t move, there is a high risk that it will lead to a round of protectionism that would be devastating for everybody,” Cargo said. “If the trade deficit with China continues to increase, it will become a bigger political issue.”