Anger toward China’s currency, trade and industrial policies has been steadily mounting in Congress, adding pressure on US President Barack Obama to take a tough stance with his Chinese counterparts at the Group of 20 leaders’ meeting next week in Toronto.
On Wednesday, the House Ways and Means Committee heard from business leaders alarmed about an initiative under which Chinese government agencies would procure high-tech products — including telecommunications, software and energy-saving equipment — only from companies that use technologies developed in China.
Last week, several software executives, including Microsoft’s chief executive, Steven Ballmer, visited Washington to complain about technological piracy by Chinese companies. And on Tuesday and Wednesday, the US International Trade Commission, a federal agency that investigates trade matters, held hearings on enforcement of patents and other forms of intellectual property rights in China.
The mounting tensions could spill over into new retaliatory import duties or other trade barriers, at a time when the US has several unresolved cases against China before the WTO, which China joined in 2001. They also reflect growing skepticism about the feasibility of the Obama administration’s stated goal of doubling US exports in five years.
And still unresolved is the issue of China’s currency, the yuan, whose value has been kept artificially low to stimulate exports. To give negotiations more time, the Obama administration deliberately missed an April deadline to produce a report that could have found China to be a currency manipulator, a determination that might lead to retaliatory measures.
Since then, China has not raised the value of the yuan, despite a visit to Beijing last month by the Treasury secretary, Timothy Geithner, who has tried to convince Chinese officials that doing so would help to correct imbalances in their economy.
“The administration constructively set the G20 meeting as an important juncture for China to change its inflexible currency practices,” Representative Sander Levin, a Democrat who leads the Ways and Means Committee, said on Wednesday. “If China does not act and the administration does not respond promptly thereafter, the Congress will act.”
Republicans were in agreement with Democrats on the issue. The top Republican on the committee, Representative Dave Camp, said China was “aggressively engaged in a series of troubling and downright protectionist policies” that could “spur a breakdown in our relationship.”
But US policymakers have limited options, a point made by Charles Freeman III, a China scholar at the Center for Strategic and International Studies, who testified at the hearing.
Chinese officials are less inclined to listen to Western arguments, given the economic crises that have buffeted the US and Europe, Freeman said. Within the Chinese government, he added, market-oriented reformers have recently lost ground to officials who favor industrial planning and promotion of state-owned enterprises.
Christian Murck, president of the American Chamber of Commerce in China, which represents 1,200 companies doing business there, said that because China navigated the recession “by reliance on traditional administrative measures rather than market forces,” those who favor state direction of the economy are “full of confidence.”
John Frisbie, the president of the US-China Business Council, a trade association based in Washington, said he supported legally sound remedies, like petitioning the Commerce Department to apply anti-dumping and countervailing duties on products unfairly subsidized by China, and bringing disputes to the WTO. But he cautioned against applying punitive duties in retaliation for China’s currency policies, saying such a step would violate WTO rules.
In November, China proposed regulations that would give certain products favored status when government agencies procure equipment. Foreign firms would be effectively denied access to the market for government purchases if the technology did not originate in China, even if the product was made in China, Alan Wolff, a lawyer at Dewey & LeBoeuf said.
At the meeting Geithner attended, China declined to rescind the so-called indigenous innovation policy, but agreed to give US officials and business executives more time to comment on how China could promote domestic technology without discriminating against foreign companies.
That has done little to mollify the US software industry.
Robert Holleyman II, president of the Business Software Alliance, the trade group that organized the software executives’ visit, said the proposed policy, along with rampant theft of technology, “seriously undermine” the economic relationship of the two countries.
Dean Garfield, president of the Information Technology Industry Council, another business association, said that China had set up country-specific technology standards and imposed burdensome and redundant product testing requirements.
Representatives of manufacturing industries were even more critical of China.
Thomas Gibson, president of the American Iron and Steel Institute, said China had subsidized factories, placed limits on imports and foreign investment, restricted exports of raw materials and manipulated its value-added tax to aid steelmakers. Such market-distorting interventions, he said, represent “a direct and ongoing threat” to US economic interests.
Leo Gerard, the president of the United Steelworkers, the country’s largest industrial union, cited a March report by the Economic Policy Institute, which found that the growing trade deficit with China eliminated or displaced 2.4 million jobs in the US from 2001 to 2008.
Treasury officials said that Geithner testified last week that China’s exchange rate policy “is both unfair and hurts the interests of American producers.”
The Chinese Embassy did not respond to a request for comment.
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