Weighing up the impact of Sino-U.S trade sanctions

In this story: Huge trade surplus for China Logic of economic engagement RELATED STORIES, SITES

By CNN's Geoff Hiscock
Asia business editor

(CNN) -- Congressional talk of possible U.S. sanctions against China comes at a delicate time for what is already one of the world's biggest and most lop-sided bilateral trade relationships.

Both China and the U.S. face slowing economic growth this year and both have domestic political imperatives to meet, including the impact and timing of China's accession to the World Trade Organization and President George W. Bush's planned visit to China in October.

China's economy is expected to grow 7 percent this year, down from last year's 8 percent, in line with the global slowdown and the softer U.S. economy.

The U.S. will be lucky to reach 1.5 percent growth this year, according to the United Nations global economic outlook released last week.

The World Bank is even more pessimistic. Last week it cut its estimate to 1.2 percent, compared with a 3.4 percent prediction just six months ago.

While both countries have massive domestic economies, they are also two of the world's great trading nations. Last year, China-U.S. trade was worth $116 billion, encompassing everything from fluffy toys to commercial passenger jets.

Huge trade surplus for China

The U.S. says the relationship is massively in China's favor, with China exporting goods to the U.S. worth $100.1 billion in 2000 and buying only $16.3 billion in return.

China disputes those figures, arguing that the U.S. figures are erroneously inflated by including re-exports from Hong Kong. Either way, there is a lot at stake. As well as passenger aircraft, China buys many of its fastest computers, its most advanced electronics equipment and sophisticated industrial machinery from the U.S.

It could turn to other suppliers such as Europe and Japan -- as it already does when U.S. companies are unable or unwilling to supply key components.

But in key sectors of information technology the U.S. is still the clear leader and the Chinese have shown great determination in acquiring U.S. high technology.

This year U.S.-China trade could reach $125 billion -- assuming that it is not catastrophically derailed by the political fallout from the spy plane drama.

Logic of economic engagement

The U.S.-China Business Council says the logic of economic engagement with China makes this unlikely.

It expects a "strong majority" of the House of Representatives to vote in favor of renewing normal trade relations (NTR) with China when President George W. Bush takes the expected action of seeking to extend NTR for another year. This vote could come in July.

Last year, the U.S. Congress voted to accord China permanent normal trade relations (PNTR) once China joins the WTO.

At the time, there was a widespread view that China would become a WTO member in the first few months of 2001. But for various procedural reasons, this has not occurred.

Before the spy plane incident, regional observers such as Hong Kong's Financial Secretary Donald Tsang suggested mid-year was a likely time for Chinese accession -- but further slippage now seems inevitable.

The U.S.-China Business Council maintains that any congressional revocation of last year's decision to grant PNTR is so unlikely as to be "virtually inconceivable".

While most U.S. legislators may agree that linking the spy plane incident to trade is unhelpful, some Democrats and Republicans have made statements in the past few days urging President Bush to cancel his planned China trip in October, to reconsider the annual NTR extension and to sell advanced military equipment to Taiwan.

Another wildcard -- though not one that the U.S. alone can play -- is the threat of thwarting China's bid to host the 2008 summer Olympics in Beijing.

In a paper prepared last month, before the April 1 incident, U.S. congressional researchers identified the main bilateral trade issues as protection of intellectual property rights; the use of trade and investment barriers; allegations that China has attempted to illegally obtain U.S. high technology; textile trans-shipments; the use of prison labor in goods exported to the U.S.; and WTO access conditions.

Now there is a new one: the value of a spy plane held on Hainan Island.

Members of Congress consider slapping sanctions on China
April 15, 2001
Bush takes 'tough' China stance as crew returns to U.S.
April 12, 2001

Hong Kong General Chamber of Commerce
WTO home page
Government Information Office, Republic of China

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