By  on February 6, 2008

WASHINGTON — When it comes to managing the tense economic relationship with China, Christopher Padilla, under secretary for international trade at the Commerce Department, has a simple message for Congress: the Bush administration has it covered.

"We cannot control or direct China's decisions, we can only influence them," he said during a speech last week at the Center for Strategic & International Studies. "So the question is what combination of policies would be most effective in influencing China's behavior. The blunt instrument of punitive legislation won't work."

Capitol Hill lawmakers are considering myriad ways to crack down on China, which many accuse of unfairly supporting its industry with an undervalued currency, unfair subsidies and other favorable treatment. Among the legislative actions under consideration are blanket tariffs to counteract the impact of currency manipulation and taking the relative value of currencies into account when administering unfair trade cases. It is unclear which approach has the most traction.

"Many of the pending bills are designed not to solve problems in China, but simply to reduce U.S. imports from China," he said.

Instead, Padilla advocated for continued engagement during what he described as a "critical juncture," when protectionist sentiments on both sides of the Pacific are stirring.

In addition to high-level meetings where U.S.-Sino issues can be addressed, such as the Strategic Economic Dialog, the Bush administration has taken trade complaints against China to the World Trade Organization and broadened U.S. trade remedy policies so companies could bring countervailing duty cases against nonmarket economies like China.

Deferring to the Treasury Department on the broader question of China's currency policies, which some allege keep the yuan undervalued by as much as 40 percent, Padilla made a case for not including currency considerations in antidumping and countervailing duty trade cases that are handled by his department.

Antidumping and countervailing duty cases can lead to higher tariffs on goods from selected countries and are a chance for relief from imports that are deemed to be sold at unfairly low prices. An artificially depressed yuan could have a big impact on prices, making goods made in China cheaper to buy with dollars, but taking that into account is difficult to do and potentially harmful, said Padilla."In this time of economic uncertainty, as Congress and the administration work together to stimulate growth, it would be very unwise to pass legislation that could inflate consumer prices," he said.

"The deficit is driven by many complex factors, including relative growth and relative interest rates, relative savings rates and others," said Padilla. "Passing currency legislation won't make the trade deficit go away."

For the first 11 months of last year, the U.S. goods deficit with China hit a record $237.5 billion, larger than the 2006 tally.

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