WASHINGTON (AP) - The Bush administration, facing heavy pressure to deal with soaring trade deficits, is considering imposing economic sanctions on China in a dispute over government subsidies.
If the administration decides to take action, it would open up a new area in which American companies being battered by a flood of Chinese imports could seek protection and would reverse 20 years of U.S. trade precedent.
Commerce Secretary Carlos Gutierrez was to announce the government's decision on Friday in a case brought by NewPage Corp., which contends that imports of high-gloss paper from China represent unfair competition to U.S.-made paper.
The government could impose penalty tariffs on Chinese paper imports on a preliminary basis subject to a final determination by Commerce later this year.
The government of China suffered an initial defeat on Thursday when a U.S. court ruled against its effort to stop Gutierrez from going forward with the case.
For two decades, the U.S. government has held that American companies did not have a right to challenge government subsidies granted to their foreign competitors if those companies were in ''nonmarket economies'' such as China.
However, last year, the administration let it be known that it was ready to consider reversing that policy.
President Bush is facing heavy political pressure from Congress, now in the hands of Democrats, to deal with soaring U.S. trade deficits, including a record $232.5 billion imbalance with China.
China asked the U.S. Court of International Trade, a federal court which handles trade matters, to rule that the administration did not have the right to reverse established trade policy without legislation or a full regulatory hearing.
The court ruled Thursday that the government does have the authority to consider penalty tariffs against China in disputes involving government subsidies.
Judge Gregory W. Carman, who heard the case for the trade court, rejected China's request to grant a temporary injunction to stop the U.S. government from proceeding.
This trade dispute is being followed closely by a number of other American industries - from steel to furniture- that have been battered in recent years by a flood of imports from China.
U.S. companies have always had the right to file dumping cases against China, which can result in penalty duties if Chinese companies are found to be selling products in the United States below cost.
But the ability to file subsidy cases could significantly expand the level of penalties that Chinese imports could face, giving American producers more protection.
The fact that the Bush administration made it known last year that it was now willing to consider cases against China involving government subsidies was seen as part of a new get-tough approach in the face of soaring U.S. trade deficits.
Treasury Secretary Henry Paulson is leading an effort to pressure China to allow its currency to rise in value against the dollar. American manufacturers contend that China is devaluing its currency by as much as 40 percent to give the country unfair trade advantages.
China would have the right to appeal the decision of the trade court, which is based in New York, to the U.S. Court of Appeals in Washington. The Chinese Embassy and attorneys representing China did not immediately respond to telephone calls seeking comment.
In his decision, Carman said the court did not have jurisdiction in the case because China could seek redress from the courts once a Commerce decision had become final.
Gilbert Kaplan, an attorney with the Washington law firm of King & Spalding, which is representing New Page, called the ruling a ''significant win'' because it allows Commerce to go forward with the subsidies case.