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A trip to talk it out on trade

Pallavi Aiyar

China's President Hu Jintao is to visit the United States next week. A number of economic and trade related disputes are on the table.

CHINESE PRESIDENT Hu Jintao's visit to the United States next week will throw into dramatic relief the underlying dynamics of bilateral ties between the world's richest nation and its fastest growing rival.

While both sides have publicly declared the visit as an opportunity to step up joint efforts to contribute to international growth and stability, beneath the diplomatic-speak serious tensions simmer.

The most intractable of these are a number of economic and trade related disputes. Significant constituencies in the U.S. have accused China of "illegal" currency manipulation arguing that an undervalued Yuan gives Chinese manufacturers an unfair advantage in trade. The Bush administration has repeatedly warned China that its gigantic trade surplus with the U.S. and mass violations of American trademarks and copyrights threaten bilateral trade ties.

According to U.S. statistics, China's trade surplus with the U.S. hit $201 billion last year, a record for any trading partner and an increase of 24 per cent from 2004. China disputes these figures, but admits to a substantial surplus nonetheless.

In recent weeks, the U.S. has filed a complaint against China at the World Trade Organisation involving a dispute over automobile parts. The following day, the U.S. Trade Representative's Office issued a report alleging that China has failed to do enough to crack down on rampant piracy on a wide range of American products.

Speaking in Beijing a couple of weeks ahead of Mr. Hu's visit, U.S. Commerce Secretary Carlos Gutierrez warned that China's failure to open up its domestic market to American companies could seriously damage trade.

Meanwhile, two American Senators, Charles Schumer and Lindsey Graham, narrowly agreed to delay a vote on a Bill they are sponsoring that would impose a prohibitively high 27.5 per cent tariff on all Chinese imports if Beijing refused to substantially revalue its currency.

In the run-up to Mr. Hu's visit, Beijing is pulling out all the stops to counter these accusations and put forward its best case to assure the U.S. that trade with China is in fact beneficial to all concerned.

Headed by Chinese Vice-Premier Wu Yi, 200 executives from 110 state-owned and private corporations are thus currently in the U.S., on a spending spree across 13 States. The buying mission involves multibillion dollar orders for Boeing aircraft, auto parts, computer software, telecommunication equipment, and soybeans among other products. The intent is to show that trade relations are not as one-sided as portrayed.

Ms. Wu will on Tuesday meet U.S. Trade Representative Rob Portman and Commerce Secretary Gutierrez for a senior level dialogue aimed at easing economic tensions to smooth the path for Mr. Hu's arrival.

Meanwhile, Senators Graham and Schumer were given the red-carpet treatment during their fact-finding mission to China in late March and convinced to delay the vote on their proposed Bill by six months.

In the week ended April 1, the Chinese currency was also allowed to rise to new highs, gaining about one percentage point. Beijing has, however, ruled out any sudden one-off shifts in its currency policy.

In recent weeks, Chinese officials have also been going all out on a publicity campaign to highlights their fight against intellectual property rights (IPR) infringements, publicising fines imposed on Chinese companies that use pirated software.

"From China's perspective, President Hu's visit is important because it will give China an opportunity to have its voice heard. He will use the trip to dispel mistrust and to explain China's attitudes and motivations," said Jia Qingguo, Associate Dean of Beijing University's School of International Relations.

According to Professor Jia, Mr. Hu is likely to stress that China is in fact the U.S.' fourth largest export market and reiterate the argument that American consumers and businesses both benefit as much as China, from Chinese exports.

China has repeatedly asserted that its trade surplus with the U.S. is a structural issue that reflects the nature of contemporary global trade and comparative economic strengths. "We sympathise with the Americans that they are worried about the trade deficit problem. We are in fact willing to spend more on their products. But we don't need their clothes or furniture. What we want are planes and high-tech products which they often don't seem to want to sell us," said Professor Jia.

In an ironic twist, it is China today that is exhorting the U.S. to embrace its own dogma of free trade, warning that trade protectionism will only be to the detriment of America itself. "If the U.S. imposes tariffs on Chinese products it will be like lifting a stone to hit your own feet," smiled Professor Jia. "How can they [the U.S.] in good faith punish China for helping them," he asks.

A rational enough question but one that doesn't take into account the less than rational, heightened economic nationalism that is currently gripping America.

While in Beijing, Mr. Gutierrez himself admitted that "there is a real protectionist and isolationist sentiment creeping up in our country."

This sentiment was highlighted by the recent rejection of the Dubai port deal that would have allowed an Arab-owned firm to operate six key ports. In a similar vein, energy-security fears killed the attempt by the China National Offshore Oil Corporation to purchase American company Unocal, last year.

Professor Jia also points to the current brouhaha over a deal for 16,000 computers for the State Department manufactured by China's Lenovo Group. The U.S. advisory commission has raised fears that the Chinese could equip the machines with chips that could potentially spy on State Department dealings.

Protectionist sentiment

It will be difficult for the Bush administration to hold out against this background of protectionist sentiment, according to Professor Jia. "Bush is somewhat of a lame duck President and his popularity ratings are at an all time low. He has no choice but to come across as protecting U.S. interests even though such a tough stance will probably be harmful for both sides," he said.

Aside from deflecting the charges levelled against it in the trade arena, Professor Jia said Mr. Hu would also be hoping to return home from his trip with a concrete achievement on Taiwan.

When Premier Wen Jiabao visited Washington in 2002, Mr. Bush publicly reprimanded Taiwan President Chen Shui Bian. Beijing is hoping for a similar outcome from this visit.

"China would hope that the U.S. will re-affirm its position on the one-China policy and agree to put more pressure on Chen Shui Bian to avoid any unilateral change of the status quo," said Professor Jia. Cross-straits tensions have heated up once again since February when Mr. Chen scrapped an official council on reunification.

Mr. Hu will be meeting President Bush in Washington on April 20. While geopolitical concerns from human rights to non-proliferation will inevitable make their way into the agenda, it's clear that economic issues will dominate.

That trade is firmly in the driving seat of bilateral ties is flagged by the fact that Mr. Hu's first stop in America will be in Seattle where he will visit Microsoft and Boeing on April 18 and 19 respectively.

"From the Chinese point of view, this is the most significant trip that President Hu will make abroad this year," said Professor Jia. "There is of course an unequal power relationship at play here. The U.S. is the stronger of the two, but China is also becoming important."

One detail pointing to the power structure underlying bilateral ties is the characterisation of Mr. Hu's trip as a "state visit" by the Chinese side, but merely an "official visit" by the Americans. While the Chinese leader will get a 21-gun salute, the White House is not giving him a state dinner, the defining event of a state visit.

In contrast when Prime Minister Manmohan Singh visited Washington last July it was declared a "full-state visit with all honours," including the dinner.

For President Hu, the visit represents a great diplomatic challenge. The danger is that despite all the hype surrounding it, the visit may achieve little with neither side getting what it wants.

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