With consumer confidence shaky and unemployment at a nine-year high, American anxiety about China's export prowess and the exodus of U.S. jobs overseas is emerging as a significant political issue.
By Neil King Jr. in Washington, Bob Davis in Milwaukee and Karby Leggett in Shanghai
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Just Tuesday, three of President Bush's cabinet secretaries traveled to the Midwest to tout the administration's tax cuts and got an earful about China instead.
"How can a tax cut help our economy when it will be spent in stores importing ... goods mainly from China?" Michael Repzer, controller of W.G. Strohwig Tool & Die of Richfield, Wis., asked the secretaries of Treasury, commerce and labor as they visited a Harley-Davidson Inc. motorcycle factory outside Milwaukee.
"You can get a hundred [Chinese workers] for every one Japanese," one worker complained as the officials toured the plant.
Even as Congress moved toward final approval of Bush-backed free-trade agreements with Chile and Singapore, trade with China is becoming a leading villain, both in Washington and across the beleaguered U.S. manufacturing belt.
Although many U.S. corporations are seeking to tap into China to make and sell their products, a lengthening queue of U.S. industries are petitioning the government for relief from Chinese imports; more than one-fifth of the cases in which U.S. companies accuse overseas competitors of selling products below cost now involve China. U.S. manufacturers, among others, are lobbying the Treasury to pressure China to allow its currency, now tied to the dollar, to rise. A stronger yuan would tend to make Chinese products more costly in the U.S. and elsewhere.
And politicians from both parties, sensitive to business and worker anxieties about the economy, are responding. Democrats such as Sen. Joseph Lieberman of Connecticut, a presidential hopeful for 2004, think President Bush is particularly vulnerable on the China trade front. "Bush's laissez-faire means 'I don't care,' " Sen. Lieberman asserted in a recent speech.
In part to protect their flank, Republicans in Congress are backing legislation to intensify monitoring of China's trade practices and to pressure Beijing to revalue its currency. Rep. Don Manzullo, an Illinois Republican, said that unless the president moves to protect domestic manufacturing jobs, "voters next year are going to take their anger out at the polls."
So far the Bush administration has trod softly with China, figuring Beijing's help on North Korea was too important to jeopardize. Early wariness of China as a "strategic competitor" changed significantly after the Sept. 11 terrorist attacks and, more recently, after North Korea began making threats about its nuclear-arms program. But with the 2004 campaign picking up, some Bush aides vow to get more muscular.
"The weather is changing in our relations with China," said Grant Aldonas, the Commerce Department's top trade official. The administration, he said, now has "serious concerns" about Chinese trade practices ranging from government subsidies to patent infringements. Beijing can fix them, he said, or the U.S. will move toward filing cases in the World Trade Organization.
Treasury Secretary John Snow said Tuesday that he is considering going to Beijing in September after a meeting of Asian finance ministers. "We need to engage the Chinese economy," he said.
As he has for the past several weeks, Mr. Snow suggested that the Chinese government is thinking about loosening the link between the yuan and the dollar, which now moves only within a very tight band. "I'm encouraged by the fact that the Chinese have indicated that they are looking at widening that band," he said.
The Treasury secretary added that some economists believe the yuan could rise between 15% and 40% against the dollar if the exchange rate were unfettered. He also noted, though, that if Beijing lifted controls on cross-border money flows, funds might move out of China; that could put downward pressure on the currency in the short term.
Over the past week, senior Chinese policy makers have made clear in a flurry of state media interviews that the domestic exchange is a matter for China alone to decide. Those policy makers and economists note that while China runs a large trade surplus with the U.S. its overall trade surplus has largely evaporated.
U.S. manufacturers have shed more than 2.4 million jobs since 2001, a rate of more than 2,600 jobs a day. Lawmakers and many manufacturers pin the blame on China, whose exports to the U.S. have more than doubled in the past five years, topping $110 billion in 2002. U.S. exports to China are also rising at a good clip, but they are likely to tally less than a fifth of what China ships to the U.S. this year.
"China is now the economic villain that Japan was in the 1980s," said Nicholas Lardy, a China specialist at the Institute for International Economics in Washington. In the first five months of this year, the U.S. ran a $43 billion trade deficit with China, compared with a $26 billion deficit with Japan. After Canada and Mexico, China is now the third-largest supplier of goods to the U.S., having displaced Japan last year.
Unlike the huge trade frictions with Japan in the 1980s, China isn't pushing to keep foreign investors out. What makes the issue all the more complex politically is that many China backers are themselves U.S. multinationals who have set up in China in force.
Still, many in Congress have zeroed in on the currency issue as a way to combat China's growing export power. A bipartisan group from both the House and Senate is now circulating a letter to Mr. Snow, urging Treasury to push China to float the yuan.
Mr. Snow, Commerce Secretary Don Evans and Labor Secretary Elaine Chao are traveling across Wisconsin and Minnesota in a plush touring bus booked next by the rock group Aerosmith to tout the administration's economic policy and show that Mr. Bush cares about the country's mounting unemployment rate.
It isn't a coincidence that unfair trade would be a big topic at Harley-Davidson. The company nearly went bust in the early 1980s until it won higher tariffs on Japanese motorcycle imports. Harley-Davidson is now the biggest seller of heavy motorcycles in Japan. On Monday, Jeffrey Bleustein, chief executive of Harley-Davidson, gave Mr. Evans a letter outlining the company's complaints about China, which include rules barring large motorcycles from parts of some Chinese cities. Mr. Evans said he asked aides to investigate and pledged to raise the issue with the Chinese.
Meanwhile, goaded by Congress, the administration is set to bulk up its trade offices to keep a closer eye on China. A Republican-sponsored amendment to next year's budget will form an Office of China Compliance at the Commerce Department. The U.S. Trade Representative's Office will get $2 million to bulk up enforcement of intellectual-property rules and assure that China lives up to its WTO commitments.
"None of this is protectionist," said Rep. Frank Wolf, a Virginia Republican who championed the amendment. "We just want to see American manufacturers have a fair shot, especially with China."
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