The US & China: Ties that Bind?

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George Bush will visit China from 19-21 November against a backdrop of the textiles trade dispute, the growing trade deficit (US$162 billion in 2004), continuing arguments over protection of intellectual property rights, valuation of the RMB, and threats by Congress to impose a 27.5 percent tariff on imported Chinese goods. He is also fresh from a meeting with the Dalai Lama, and the US State Department has issued a critical report on religious freedom in China, which has not pleased his Chinese counterparts.

Of course there is also a lot of positive news in the US-China relationship, as US businesses and consumers benefit from trade and investment opportunities – and low prices. Other high-profile US visitors, arriving ahead of Bush, include Arnold Schwarzenegger, and 218 business people from Minnesota – who are on the largest-ever US trade delegation to China. However, the threats to trade, investment and the bilateral relationship from US interest groups that are focused on US job losses and human rights in China, remain real.

A lot of the anti-Chinese messages from the US result from a belief that US job losses and the growing trade deficit – are a direct result of companies moving production to China to take advantage of cheap labour. The textiles industry is a case in point. However, a study by the consultancy McKinsey questions this approach. They found that, while the manufacturing sector in the US lost 2.85 million jobs from 2000 to 2003, only around 314,000 of them were as a result of trade – and that falling exports, rather than rising imports, were to blame. The authors argue that the real causes of job losses were weak domestic demand, rapid productivity growth, and the dollars strength, which dampened US exports, and that short-term protectionism is not the answer. Instead the US needs to stimulate domestic demand, cut the budget deficit, and press for appreciation of artificially cheap currencies against the dollar.

On the issue of intellectual property protection, a report from the US Customs Department, notes that shipments from China accounted for 63 percent of all counterfeit goods seizures in the US last year (mostly cigarettes, handbags, clothing and accessories), representing trade worth US$87.3 million. That compares with 66 percent US$$62.5 million) in 2003, 49 percent in 2002, and 46 percent in 2001. Via the World Trade organisation (WTO) the US has formally requested that China explains what action it is taking to combat the trade in fake goods.

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