China Vs. The U.S.: Beijing Blinks

Many observers believe the current dispute between the U.S. and China over Chinese piracy of U.S. movies, software, and intellectual property will be resolved with a compromise, if only because both sides have so much to lose. Indeed, the Chinese have already acceded to many U.S. demands, at least on paper.

Still the U.S. is hanging tough. It is insisting on concrete actions, both to open Chinese markets more fully to U.S. film, music, software, and publishing industries and to crack down on Chinese factories that pirate such products for sale within China and abroad.

A major reason for America's tough stance is the skyrocketing U.S. trade deficit with China. Since 1988, U.S. imports from China have shot up like a Chinese firecracker, climbing by over $25 billion, to an estimated $39 billion. But U.S. exports to China have risen by only $3 billion to $4 billion, and in recent months, they have actually fallen below year-earlier levels. As a result, the U.S. trade deficit with China is now second only to that with Japan and accounts for roughly 20% of America's total trade deficit.

Faced with a ballooning trade deficit, China last year managed to move from a shortfall of $12.2 billion in 1993 to a trade surplus of $5 billion--while growing at more than an 11% pace. Without American demand, which consumes more than a third of China's exports, this impressive turnaround would have been impossible.

Thus, it is China rather than the U.S. that has mainly profited from Sino-American trade so far. And as the U.S. demands a level playing field, it find its strongest ammunition in the heavily one-sided trade data.

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