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Changing Dynamics of China Trade Debate

Changing Dynamics of China Trade Debate

The adversarial relationship between Congress and the Executive over commercial policy toward China should be less acrimonious in 2009 with Congress initially deferring to the new Administration. While the recession could increase popular pressure for trade restrictive measures, it may reduce the bilateral trade deficit which could diminish protectionist pressure with respect to China. President-elect Obama will decide whether to continue the Strategic Economic Dialogue and, if so, whether Treasury continues to lead. The BIT negotiations to which the SED gave rise will in any event continue and will likely lead to a weaker agreement than the U.S. business community would like to see.

The 110th Congress saw nearly 100 China-related bills introduced. Most of these were trade restrictive covering a range of issues: treatment of China as a non-market economy, IPR protection, food and product safety, the trade deficit, safeguards to address import surges, the use of countervailing duties, currency manipulation, Tibet and Taiwan, of which only five became law. Revaluation of the RMB and a smaller trade deficit along with a new Administration of the same party may well diminish congressional appetite for restrictive legislation. One area in which Congress could act is to define currency manipulation more clearly by amending the 1988 law which mandates Treasury’s bi-annual exchange rate reports, although if the Obama Administration determines that China has manipulated its currency in its first report, it would lessen the likelihood of Congressional action.

If the Congress does let the Executive Branch take the lead, much will depend on how assertive the new Administration decides to be. One early indicator will be how Treasury treats Chinese currency in its annual exchange rate report to be released in April.  Other indicators will be USTR’s willingness to use WTO dispute resolution and rulings on the likely increase in filings of countervailing duty cases claiming that currency manipulation constitutes a subsidy. Likewise there may be an increase in “421 cases” filed on the basis that surges in Chinese imports caused material injury, especially coming from the textile industry.

One positive outcome of the December SED meetings was a “Ten Year Framework for Energy and Environment Cooperation” that creates seven “EcoPartnerships” between local governments, universities and NGO’s in the two countries. While the Obama Administration may take a stronger position on CVD’s and 421’s, it will also be likely to build on these SED initiatives.