A Trade Crisis Is the Real China-U.S. Risk
Philip Bowring International Herald Tribune
Wednesday, April 25, 2001
BEIJING The storm over the U.S. spy plane is blowing itself out. Extremists on both sides, assisted by overwrought media coverage, wanted to build the incident into a major Chinese-U.S. confrontation. But it is now being seen for what it was - an accident which generated much rhetoric but said little about the U.S.-Chinese relationship.
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It should be a reminder, however, of the real issues on which the relationship could founder, the economic and strategic ones.
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The strategic issues - arms for Taiwan and the proposed U.S. missile shield - may appear the more dangerous. They will continue to generate a barrage of sometimes blood-curdling invective from Beijing. But that is more the result of China's frustrations at its lack of leverage than a real threat.
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There is little that China can do by way of forced resolution of the Taiwan issue for at least a decade. Indeed, there is a reasonable, but not overwhelming, argument that early commitment to supply the Aegis system and other defensive arms would persuade Beijing to stop dreaming of reunification in the tangible future and revert to the Mao/Deng doctrine of leaving the matter to history and to China's manifest destiny.
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Economic issues are more immediately dangerous. They have become the core of the U.S.-$ Chinese relationship and are a key to China's political evolution during this decade. A breakdown here would also have huge repercussions for the global trading and financial systems and thus can be considered a major U.S. security issue.
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One the face of things, a breakdown may seem a remote prospect. China's entry into World Trade Organization is assumed to be a done deal. As underlined by a recent World Economic Forum meeting here, U.S. corporations are continuing to invest heavily in China's future, and from the Chinese side the momentum of reform is being sustained.
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China's progress seems to justify those in the United States who argued that opening the vast U.S. market in the early stages of China's reform, long before entry into WTO became a possibility, has paid off. It has been an important lever in China's conversion to a market system and integration into a U.S.-led global capitalist economy.
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However, dangers lie ahead. It is quite likely that without more commitment now to resolving outstanding WTO entry issues - the devils in the detail - China will not be a member by November, the date of the crucial WTO ministerial meeting in Qatar. If so, the chances of meaningful progress being made at that meeting will be reduced. Indeed it could become a repeat of the disaster in Seattle.
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If the China entry procedure drags on into 2002 and the U.S. economy is mired in a recession that proves impervious either to interest rate cuts or tax cuts, China will be exposed. Without the protection of WTO rules and with a trade imbalance with the United States of alarming proportions, it will be exceptionally vulnerable to discriminatory barriers.
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It is now forgotten how much antipathy there was in the United States to Japan at the height of its trade surplus. Yet Japan was an important ally and was not accused of human rights and labor abuses. China is seen more as a rival than a partner and faces the additional challenge of President George W. Bush giving priority to relations with its neighbors.
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Nor can U.S. business be expected to continue to press the case for trade with China if exports to China continue to be weak, profits on investment there remain elusive, profits at home are in free fall and closer countries such as Mexico offer a more congenial business environment.
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The combination of a global slowdown, financial market volatility, the U.S. trade imbalance and worldwide excess of manufacturing capacity is worrying for everyone. China is especially vulnerable to the global upsurge in protectionism that could result from this Perfect Storm scenario, and in particular to populist and labor sentiment in the United States, which buys 35 percent of its exports. A severe trade setback for China would have untold consequences for its domestic reform agenda, and create waves throughout east Asia and for the global banking system.
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This may sound alarmist. It is meant to be. Management of the U.S.-Chinese economic relationship over the coming two years will probably be a bigger challenge than the spy plane. We should at least be aware of the danger and be prepared for damage control. That means moving quickly on WTO membership for China and being ready to negotiate difficult trade and currency valuation issues before emotion takes control of the agenda.
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