Record China deficit clouds U.S. talks
U.S. government data out Tuesday showed the U.S. trade deficit with China grew 6.1 percent to a record 24.4 billion dollars in October, representing a whopping 41 percent of the total U.S. gap of 58.9 billion dollars.
In the run-up to year-end holidays, U.S. retailers and consumers splurged on cheap Chinese goods to drive imports from the Asian powerhouse up to an all-time high of 29.3 billion dollars.
That accentuated a headache for the top-level delegation of U.S. economic leaders, including Treasury Secretary Henry Paulson, which is due to launch a new strategic dialogue in Beijing on Thursday and Friday.
As the Democrats prepare to retake control of Congress next month, the U.S. administration is under pressure to get tough over allegations that China distorts its currency rate among other measures to bolster its exports.
Joel Naroff at Naroff Economic Advisors noted that Paulson, Federal Reserve chairman Ben Bernanke and other top officials were in the unenviable position of "toting an ever-widening deficit with them" to Beijing.
"It looks as if our deficit with China will be about 240 billion dollars this year, about a 15-percent increase (on 2005)," he said. "Needless to say, that will create some real pressures to get things done, especially with a not-so-friendly Democratic Congress about to exert its unhappiness."
Monday, exactly five years after China joined the World Trade Organization, U.S. Trade Representative Susan Schwab issued a hard-hitting summary of where China is flouting its market-opening commitments.
The USTR report to Congress stressed that China appears to be going backwards in some pivotal areas, including in "rampant" piracy of U.S. goods and favoritism towards Chinese industries.
Washington prefers dialogue such as this week's strategic talks to resolve trade frictions with Beijing, the USTR report said.
But when these efforts fail, the administration "will not hesitate to use the range of tools available, including WTO dispute settlement procedures and the application of U.S. trade laws" to bring China to heel, Schwab warned. Paulson, writing in Monday's Washington Post newspaper ahead of this week's talks, argued that economic relations between the two countries had reached a "pivotal moment." He appealed to China to emulate other "vibrant" economies in building "open, competitive capital markets." "Such markets will contribute to sustained economic growth and boost job creation in China. And strengthening and reforming financial markets will ultimately allow the Chinese to freely float their currency."
But with China insisting that the yuan's exchange rate is a "sovereign issue," the U.S. Business and Industry Council fears that Paulson and his team will hear the "same old song" in Beijing.
"A fundamental change in U.S. trade policies is urgently needed, including the strongest response to Chinese transgressions," USBIC president Kevin Kearns said.
Chuck Grassley, the outgoing Republican chairman of the Senate's powerful finance committee, underlined that China must show it is receptive to U.S. concerns on the currency and other disputes.
"I hope the Chinese appreciate that we're very serious about this engagement," he said. "This is the first meeting, so I don't expect significant results right away. But this should help the Chinese understand that we need to see progress, and soon."