A New Round of U.S.-China Trade Talks

It's a tranquil setting for what are likely to be acrimonious talks on the $400 billion U.S.-China trade relationship. Starting Oct. 29, top U.S. trade and commerce officials will meet their Chinese counterparts for a day of verbal wrangling near the peaceful shores of West Lake in the eastern Chinese tourist destination of Hangzhou.

U.S. Commerce Secretary Gary Locke and U.S. Trade Representative Ron Kirk will sit down with Vice-Premier Wang Qishan and other Chinese economic officials for the annual U.S.-China Joint Commission on Commerce & Trade. They will address some of the deep divisions in America's second-largest trading relationship (behind only Canada) and by far the most contentious. In the first eight months of this year, the U.S. trade deficit with China totaled $143.7 billion—down 15% over the same period in the previous year because of the global recession. That's still the largest trade gap the U.S. has with any country.

That is a perennial issue for U.S.-China trade talks, but this year's meeting has taken on added importance because of its timing. Hangzhou is the first high-level round of talks since Washington and Beijing traded accusations of protectionism last month. In September, President Barack Obama slapped 35% duties on China-produced tires. And earlier this month, Washington decided to launch an investigation into whether to also raise tariffs on Chinese-made steel pipes. Beijing responded quickly by launching its own investigation into possible dumping by U.S. chicken and auto parts. Many of the U.S. measures "were groundless and wrong," Chinese Commerce Ministry spokesman Yao Jian said on Oct. 14. Both sides need to "recognize the dangers of trade protectionism," warns Chinese Academy of Social Sciences economist Zhang Xiaojing.

Improvements AheadLocke and Kirk's meetings with Chinese officials also could set the stage for Obama's summit with President Hu Jintao in Beijing next month. Obama is scheduled to visit Shanghai and Beijing on Nov. 15-18, his first visit to China as President. Speaking in Guangzhou on Oct. 27, Locke said he expects the trade discussions, followed by Obama's visit, to lead to "significant improvements and progress in the trade relationship between the two countries."

On the U.S. agenda in Hangzhou: seeking improvement in China's poor record of protecting intellectual-property rights including software, music, and movies. The U.S. also wants to whittle down trade barriers affecting medical devices, pharmaceuticals, and energy products. "It is critical that we make progress on [these] priority issues," Locke said on Oct. 21 in Washington.

The U.S. is also concerned about a call earlier this year by key Chinese ministries, including the powerful National Development & Reform Commission, requiring local governments to buy Chinese products whenever possible. "Except for engineering, goods, and services that cannot be obtained under reasonable business conditions within China, domestic products should be purchased for the government investment program," the June announcement said. According to a survey done that same month by the Washington-based U.S.-China Business Council, 28% of member companies see "buy local" rules in government procurement as a sign of growing protectionism in China. And 23% said they face market access barriers.

The Obama Administration is also concerned about the undervalued Chinese yuan. The currency is up around 21% from July 2005 to mid-2008, but basically unchanged since then as China has tried to shield its exporters against the global recession. "I think more progress needs to be made in that area," Locke said at his press conference in Guangzhou. While the Obama Administration on Oct. 15 declined to name China as a currency manipulator, a designation that would further ratchet up tensions between the two countries, it did say that the yuan was undervalued. China's currency controls "threaten the fragile U.S. recovery and constitute an unfair practice in international trade," the American Iron & Steel Institute wrote in a letter to the Obama Administration on Oct. 26.

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