US domestic politics eclipse trade row

PUBLISHED : Sunday, 27 May, 2007, 12:00am
UPDATED : Sunday, 27 May, 2007, 12:00am

While the agreements of the Strategic Economic Dialogue (SED) have not stopped the growing anti-China sentiment in Washington, it appears for now that the anger, particularly from the US Congress, remains more talk than action.

Sanctioning trade with China is unlikely to be the top priority for American politicians, who currently have their hands full with more pressing international concerns, such as the war on Iraq.

'Tangible results' were the words used by US Treasury Secretary Henry Paulson to describe the accords reached from the two-day SED meeting last week.

Vice-Premier Wu Yi also called the agreements - encompassing civil aviation routes, the financial services industry, environmental technology and the purchase of USS$32.6 billion worth of American goods - 'a complete success'.

Despite positive words from both sides, the reaction from the US Congress was unsurprisingly negative because there was no movement on the contentious yuan valuation, which many US commentators blame for the growing trade deficit with the mainland.

'For years, we have heard vague assurances of greater market access for American financial institutions, but they rarely seem to become reality,' said Democratic Senator Charles Schumer, a leading critic of Beijing.

Charles Rangel, a Democrat congressman, announced after meeting Ms Wu on Wednesday that he would move forward on a measure that placed sanctions on the mainland because of the yuan issue.

The response was also mixed from those who backed the new agreements.

'There were some successes, but there are also some places where more work needs to be done,' said Rick Larsen, a Democratic congressman from Washington state, the home of airplane manufacturer Boeing, which exports to the mainland.

Robert Nichols, president of the Financial Services Forum, testified to a Senate subcommittee that 'there is much more to do in many areas and we need more milestones'.

Such displeasure was not helpful to Mr Paulson, who staked his credibility on the SED.

The Treasury secretary has gone on a public relations offensive providing a series of interviews to emphasise that the dialogue was a long-term mechanism to stabilise Sino-US economic relations while unsuccessfully asking Ms Wu to lift the 25 per cent ceiling on foreign ownership of mainland banks.

A key reason the SED deals did not placate Congress was that the benefits go mostly to the financial services sector or to US industries that already benefit from trade with China, such as aviation and agriculture.

There was not much done to address the American manufacturing jobs lost to cheap Chinese imports.

Despite the harsh rhetoric from Congress, however, US analysts said it remained unclear whether the proposed sanctions would be carried through.

'While there is disappointment, there is no explosion of anger,' said Claude Barfield, a trade expert from the American Enterprise Institute. The contained reaction is because lawmakers, particularly Democrats, are focused on challenging a weakened President George W. Bush on more contentious issues.

During the SED meetings, Congress voted on a new Iraq war funding bill and an illegal immigration plan.

Many politicians cut their meetings short with Ms Wu and her delegation to vote on the bills.

This lack of focus on China was evident during President Bush's Thursday press conference when he answered only one question on the SED and spent most time defending the Iraq war and immigration bill.

Another telltale sign was the US media coverage.

The deals and subsequent negative congressional reactions were relegated to the inside pages of The Washington Post and The New York Times. A Friday story about Ms Wu with US congressional members was relegated to page 5 of the Post's business section.

With Washington embroiled in such issues, punishing China was not the main priority, said Barry Lynn, a senior fellow at the New America Foundation. 'Americans cannot handle more than two issues at one time,' he said.

Analysts say some congressional action against China may come later this summer, but Mr Bush is expected to veto any such legislation, and it remains unknown whether there will be sufficient votes to override it.

Trade gap

Analysts blame the growing US trade deficit with China on an undervalued yuan

The US trade deficit, in US dollars, last year was $232.5b