U.S. Treasury Secretary Henry Paulson – fresh from his China trip, and with the new “China-U.S. Economic Dialogue” under his belt – has reportedly (via Bloomberg) told the stick-wielding senators (Schumer and Graham) to back off, and offers some good advice:
• Threatening China (with punitive 27.5 percent import tariffs) is “not the right way to negotiate with China.”
• “One of the issues we always have when we talk about success with China — we have the same objectives, we have the same principles, but the question is speed”.
Thank you, Secretary Paulson!
Meanwhile China has also been suggesting restraint. The FT quotes the foreign ministry as saying:
“We hope the US senators will view objectively and rationally the problems that have emerged in the process of rapid development of Sino-US trade…and will cease deliberation on a bill harmful to Sino-US economic co-operation”.
The FT adds that there is little chance of the bill going through in any case:
“both because the House of Representatives has already passed a China trade bill and will be reluctant to undertake another, and because the White House would probably veto any bill that did make it through Congress…A unilateral imposition of tariffs to compensate for alleged competitive currency manipulation would be flatly illegal under World Trade Organisation rules and would almost certainly spur litigation by China at the WTO.”
Hopefully all this will turn out to have been a storm in a very political tea cup. However it does highlight the fact that mixing US protectionism with Chinese nationalism has the potential to cause a big, very unwelcome bang for the economy and for trade.
29/9 Update: Hot off the press from the FT today – the stick has been put away:
“[Schumer and Graham] on Thursday abandoned their legislation to impose 27.5 per cent tariffs on Chinese imports, but promised a broader-based attempt next year to encourage China to revalue its currency.”
I will watch the new initiative with interest, and suspect it will be a bit more subtle.
See news sources:
Paulson Says Threats Are Wrong Way to Deal With China (Update1) 
Bloomberg – USA
… 27 (Bloomberg) — US Treasury Secretary Henry Paulson said he told two legislators that threatening tariffs is “not the right way to negotiate with China.”. …
China asks US to drop tariff bill 
China’s foreign ministry called on US senators to drop a bill that would impose 27.5 per cent tariffs on Chinese imports in retaliation for Beijing’s alleged undervaluation of the renminbi.
US senators drop China imports tariff bill
By Holly Yeager in Washington
Published: September 29 2006 01:27 | Last updated: September 29 2006 01:27