US, China square up in trade war...again

Stacking the Deck
When Hu Jintao sits down with George W. Bush, there‘ll be an elephant in the room: China‘s lopsided trade with the U.S.
By Bay Fang
4/24/06
It was the week before the presidential summit, and in Washington, aseries of key trade negotiations have just set the stage for talksbetween President Bush and President Hu Jintao of China. The Chinesehave promised to reopen their market to U.S. beef and committedthemselves (again) to reduce piracy of American goods, among otherthings--but the concessions all come as a surprise. "It went betterthan we expected, frankly," says a trade official close to thenegotiations. "Usually, all the negotiations are done in the two monthsbefore the talks, but this year, up until a couple days before we metwe had no idea if they would bring anything to the table."
President Hu is coming to Washington, and by all accounts,expectations are low. With the U.S. trade deficit with China hitting arecord $202 billion in 2005, and contentious issues like Chinesecurrency values and protection of intellectual property rights, thereis more than enough for the two leaders to discuss--but neither side isexpecting to get a whole lot of substance accomplished during thisvisit. "It‘s all about managing a modest agenda toward a modestsuccess," says Kevin Nealer, a partner in the Scowcroft Group, aninternational advisory company, who specializes in China. "It‘s makingmeetings between two heads of state look normal."
That in itself could be an important accomplishment. There aretensions, after all, not only over trade but also over China‘s growingmilitary and political influence in Asia, its threats toward Taiwan,its competition for energy resources, and its human-rights abuses. TheChinese worry about whether the United States is moving toward acontainment policy with Bush‘s diplomatic moves such as his recentembrace of India.
Smile. For Chinese officials, a key part of what theyare unilaterally calling a "state visit" is the photo ops. After muchnegotiation, Hu on Thursday will receive a ceremonial welcome on theSouth Lawn and a 21-gun salute. He will be treated to a formal luncheonat the White House, though not a state dinner (since the Bushadministration doesn‘t regard this as a state visit). "The Chinesepeople want to see their president treated as a great leader," saysMichael Green, until recently the head of Asian affairs at the WhiteHouse‘s National Security Council. "Whereas in Washington, the Americanpublic and Congress want to see the Chinese being held accountable on anumber of issues."
Luckily for Hu, Congress will be in recess. Some of his biggestcritics are on Capitol Hill, where lawmakers have introduced two billsthreatening punitive trade sanctions if China does not allow itscurrency to rise. U.S. manufacturers contend that China‘s yuan isundervalued by as much as 15 to 40 percent, giving Chinese goods anunfair advantage that costs American jobs and contributes to the tradedeficit. "The failure of China to permit its currency to move, as mostother countries in the world are doing, leads to a major protectionisttrade reaction here in the United States," says C. Fred Bergsten,director of the Institute for International Economics in Washington.