U.S.-CHINA TRADE LIES IN BALANCE

Byline: Joanna Ramey

WASHINGTON — The nation’s capital is awash in speculation over what could or should happen to U.S.-China trade relations if the Chinese continue to detain a U.S. spy plane and its crew.
It’s been 10 days since a Chinese military fighter jet clipped a U.S. Navy reconnaissance plane, forcing the plane to make an emergency landing on Hainan Island and apparently killing a Chinese pilot. The Chinese insist that the U.S. apologize for the accident and have rebuffed Bush administration regrets and other overtures regarding the death of the Chinese fighter pilot. Thus far, President Bush has ruled out any retaliation against China, including trade sanctions.
“If this is prolonged, and the congressional temperature goes up, this could turn out to have…an adverse effect on trade,” said Nicholas Lardy, a China expert at the Brookings Institution.
However, for the time being, Lardy sees diplomatic restraint by both China and the U.S. as helping to preserve economic ties.
The pressure on Bush is eased because Congress is in recess until April 23. Before lawmakers adjourned last Friday, legislation was introduced that would cancel China’s normal trade relation status, which would raise tariffs to as much as 100 percent.
“If those men aren’t out of there by the time Congress gets back, that will be the first order of business,” said Larry Wortzel, director of the Asian Studies Center at the conservative Heritage Foundation.
Wortzel has been a booster of China shedding its closed-market ways and last year supported Congress granting China permanent normal trade status once it joins the World Trade Organization.
“I, like everybody else, have to rethink that position,” said Wortzel. “If they won’t operate by common international rules, how can they be trusted to operate under the rules of the World Trade Organization.”
The American Textile Manufacturers’ Institute, a long-time critic of U.S. textile trade policy toward China as being too liberal, on Tuesday fired a letter off to members of Congress urging China’s trade status be canceled.
“China’s recent arrests of dissenters, U.S. citizens and academics indicate that it is unworthy of normal trade relations. Detaining the crew of the U.S. surveillance plane should be the crowning blow,” wrote ATMI president Charles Hayes, who is also chairman of Guilford Mills.
The China standoff occurred at a time when some members of the ATMI were ready to take a first-ever trip for the association to China to explore potential export markets.
For the year ending January 2001, U.S. textile mills showed a 43 percent year-over-year increase in exports to China, shipping $111 million worth of products ranging from broadwoven and felt fabrics to yarns and floor coverings.
The ATMI trip, set for next month, has been delayed because of scheduling conflicts. A new date hasn’t been decided. Carlos Moore, ATMI’s executive vice president, said there’s no direct link between the association’s desire to expand its export market in China and possible revocation of China’s trade status.
“China is potentially a major market,” said Moore, adding that should the Bush administration or Congress act to retaliate against China, the association would rethink its Chinese trade mission.
Like everyone else, U.S. companies that rely on imports of textiles and apparel from China haven’t been able to glean much information about what the ramifications of the U.S.-China stalemate will be. China last year shipped about 6 percent of all U.S. imports of apparel and about 8 percent of textiles.
“At this point, companies are taking a wait-and-see attitude. I think there is a lot of concern,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles and Apparel. “Companies are a little bit nervous. It’s serious, it’s totally serious, but there isn’t much you can do at this time.”
Hughes said companies won’t likely reevaluate their sourcing plans from China unless the stalemate continues for two more weeks and Congress returns with the issue of China’s trade status on its plate.
“If the stalemate continues after Congress comes back, I think you will see some concern by companies about whether they should have contingency plans or not,” Hughes said.
Further complicating U.S.-China relations and potentially threatening trade is the long-brewing dispute in Congress over U.S. arms sales to Taiwan, over which China continues to lay claim. There are several influential members of Congress who support the U.S. selling arms to Taiwan to defend itself against a potential Chinese invasion. Since the spy plane stalemate, there’s been some discussion by lawmakers that the U.S. should further boost Taiwan’s military power to have offensive capabilities.
Gary Hufbauer, a senior fellow at the Institute for International Economics, said, “If that gets enjoined in a much more serious way, I would think it would spill over into the trade and investment area. Then you’re back to a very cool relationship, if not a Cold War.”

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