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Breathing Fire At The Chinese Dragon

In the past month, the U.S. has slapped import quotas on some Chinese textiles, placed China on a "watch list" for failing to protect intellectual-property rights, and threatened to brand Beijing a currency manipulator. But while Bush Administration officials insist that the new "talk-tough" approach is not a prelude to a trade war, they believe it is the last best chance for more balance in an economic relationship they say is now tilted heavily toward China.

The push is part of a coordinated effort by a new crop of economic officials to narrow the U.S.'s mammoth $162 billion trade deficit with China. Recently installed U.S. Trade Representative Rob Portman has initiated a "top-to-bottom" review of his department's relations with China, while new Commerce Secretary Carlos M. Gutierrez is set to visit Beijing in early June to press for greater protection of intellectual property. "As [China]'ll see more and more instances where the U.S. is insisting upon fair trade," President Bush said at a May 31 press conference.

A key moment could come if, as the Administration expects, Beijing agrees to relax its grip and allow the yuan to appreciate significantly against the dollar by the fall. "We're going to see action," Treasury Secretary John W. Snow told the Senate Banking Committee on May 26.

It was a bold prediction, especially in light of Beijing's repeated rejections of Snow's revaluation appeals. But behind the public bravado, the second-term economic team is exerting White House, congressional, and global pressure to make it happen. The strategy, crafted in part by Treasury Under Secretary for International Affairs-designate Tim Adams, involves using public and private diplomacy, both bilateral and multinational, to persuade China to abandon its policy of pegging its currency at 8.28 yuan to the dollar.

The pressure is coming from the top down. In a phone conversation with Chinese President Hu Jintao in early May, Bush alluded to the need for action by China on the yuan, officials told BusinessWeek. Bush is expected to be more explicit when he meets Hu here in September.

Punishment Mode

Should Beijing continue to balk, Treasury will name China as a currency manipulator in the department's semiannual exchange-rate report, due in mid-October. That would pave the way for Congress to enact punitive measures.

And Congress appears eager to oblige. Before summer recess, the Senate is expected to pass a bill sponsored by Charles E. Schumer (D-N.Y.) that would impose heavy tariffs on Chinese imports if Beijing doesn't change its currency policy. Administration officials say Bush opposes the proposal and would veto it. But in an effort to maintain the pressure, Bush advisers say the President might be willing to go along with what one official called "Schumer Lite" if Beijing doesn't act.

The U.S. also is stepping up the pressure on the international front. Snow is expected to press the Group of Eight nations to single out China for criticism at their June 10-11 meeting in London. Treasury is also husbanding support at the International Monetary Fund.

U.S. officials recognize that the new, forceful approach is not guaranteed to succeed. Indeed, it could backfire by stiffening China's resolve to resist revaluation. But the Bushies are betting that, at a minimum, they will finally get Beijing's attention.

In one of those cases of cosmic irony, the identity of Deep Throat, the most famous anonymous source of all time, was revealed to be former FBI bigwig W. Mark Felt at the same time the news business is reeling from a series of scandals involving the misuse of unnamed informants. Just 28% of Americans have a lot of confidence in newspapers and TV news, a May 23-26 Gallup Poll found. That's down significantly from the post-Watergate high of 51%. But the embattled press still ranks higher than organized labor (24%), Congress (22%), and Big Business (22%). The public also gives qualified support to Deep Throat wannabes: A May 18-22 ABC News/Washington Post Poll found that 53% of Americans approve of the use of anonymous sources; 43% do not.

Big business won big this spring with passage of class-action limits. Now small business wants a piece of the legal-reform action. The Lawsuit Abuse Reform Coalition (LARC), an alliance of 130 groups, is seeking mandatory sanctions against lawyers who file frivolous lawsuits. The plan "does for small business what class-action reform did for Big Business," says Dirk Van Dongen, president of the National Association of Wholesaler-Distributors. "It targets the woman-with-the-finger-in-her-chili kind of stuff." The House Judiciary Committee approved the measure on Apr. 25 -- along with a bill to protect the food industry from obesity-related lawsuits. Business reps concede that they face an uphill fight in the Senate.

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