Thursday, April 19, 2007

US-China trade tensions rise

Cheap imports draw growing complaints from US companies, prompting Congress and the White House to weigh new tariffs.
| Staff writer of The Christian Science Monitor
The Bush administration is starting to target the "Made in China" label.

After listening to businesses complain about losing orders to Chinese companies, the US is starting to impose tariffs on a wide range of Chinese products - from bras to television sets. At the same time, Congress, revving up for the 2004 elections, is considering legislation that could mean higher prices for goods ranging from apple juice to CD players.

The recent moves are reviving fears of some kind of trade war between the world's largest consuming nation and one of its largest suppliers. It is likely to be one of the top items discussed when China's premier, Wen Jiabao, makes his first official visit to the United States this weekend.

A trade war is a prospect that scares everyone from Federal Reserve Chairman Alan Greenspan, who terms the Bush administration's tariff moves "creeping protectionism," to Wal-Mart, which counts on getting inexpensive goods from China.

"This issue will remain hot all the way through the election simply because the Chinese have such a great advantage on cost on so many items," says Don Straszheim of Straszheim Global Advisors in Santa Monica, Calif.

This advantage is one reason the US trade deficit with China is expected to reach $130 billion this year, up from a record $102 billion in 2002. Yet it isn't as if China is closing off its markets to US goods, the way Japan often did in the 1980s. China is now the fastest-growing export market for US products - everything from planes to soybeans. Last year, US companies increased their exports by 19 percent. This year they're up 22 percent.

Despite these gains, however, the balance of trade is expected to continue to tip heavily in Beijing's favor, particularly as an increasing number of American auto parts are made in China.

Sheri Reichart of Schaefer Brush Manufacturing - a Waukesha, Wisc., firm in business since 1905 - knows all too well the impact of these inexpensive Chinese imports. She recounts how a major customer showed her an exact copy of a wire brush Schaefer makes for plumbing fittings. Even the molded handle was the same size and color.

But the customer said he could buy it for 50 percent less than Schaefer sells it for, and unless she matched the price, the next order would come from China. "We reduced the price, but we can't continue at this rate," says Ms. Reichart, the president of Schaefer, a family-owned firm.

Reichart has written her congressman, senator, Vice President Dick Cheney, and President Bush. "We will talk to people until someone pays attention," she says.

Revolt of US manufacturers

It is a message an increasing number of companies are sending to Washington. "We're getting calls and e-mails from our members saying 'what are you guys doing supporting free trade? Haven't we had enough?' " says Frank Vargo of the National Association of Manufacturers.

The protests are resonating with some members of Congress. They're looking at legislation that would require the president to impose 27.5 percent across-the-board tariffs on Chinese goods unless Beijing lets its currency float. Presumably that would cause the yuan to rise against the dollar, helping US exports.

Sen. Charles Schumer (D) of New York, a chief sponsor of the proposed legislation, says one catalyst for him was the decision by Carrier Corp. to close a manufacturing plant in Syracuse, N.Y., and move production to China. Now he's hoping to tack the tariff proposal on as an amendment to other legislation that must be passed before Congress recesses.

Whether Congress' efforts would stick is another matter. The US is a member of the World Trade Organization (WTO) and must abide by its decisions. This week, for instance, the US is expected to eliminate tariffs on steel imposed last year. The WTO ruled them illegal and other countries were set to impose counter-tariffs if the US didn't act.

Still, US companies have other options in fighting cheap imports. They can, for instance, file complaints with the Commerce Department, which can block products from crossing the border. Yet many companies note that the complaint process is time consuming. And trade violations, such as dumping charges (selling below the cost of production), are hard to prove in a nonmarket economy like China's.

Too many apples

That's what happened to apple-juice manufacturers. In 1999, they complained about too much frozen juice concentrate coming in from Asia. In 1994, China represented 1 percent of the apple-juice market in the US. Last year, it was 27 percent. US apple growers filed a dumping charge after juice prices had dropped 53 percent.

In deciding the case, the Commerce Department had to pick a "surrogate" country to determine what it might cost the Chinese to make their juice. The agency had to choose between Poland and Turkey. It chose Turkey and then decided five of the Chinese firms were not dumping. "If they had chosen Poland, they would have maintained some duties on the companies," says Jim Cranney of US Apple, a trade group.

Now, he says, apple orchards are being sold and processing plants are shutdown. "We were disappointed," he says.