U.S. free-traders sour on China

U.S. free-traders sour on China

By Patrice Hill - The Washington Times

Long-simmering trade tensions between the United States and China have broken out into open verbal warfare, with some highly respected and influential voices on trade now advocating an all-out economic war with the Asian giant.

At the center of the dispute is the gigantic U.S. trade deficit with China, which, at $226.8 billion in the first 10 months of the year and growing, is the largest such imbalance in the world. The bilateral imbalance came back with a vengeance in 2010 after retreating during the recession from all-time highs of around $260 billion.

Adding fresh fuel to the clash, the Commerce Department reported Friday the U.S. trade deficit with China for October marked a 20 percent increase from the same period last year. At that pace, the bilateral trade gap would total about $272 billion for the entire year.

By some estimates, the China-driven trade deficit cut potential growth in the U.S. economy in half from 4 percent to 2 percent in 2010 as consumers showered money on imports rather than U.S.-made goods — preventing the creation of millions of jobs had those purchases been directed at U.S. goods and services.

Private trade analysts who typically extol the benefits of free and open global commerce say the size and persistence of the U.S.-China imbalance call for new thinking.

In this Dec. 9 photo, construction workers in Shanghai push wheelbarrows past an energy-themed advertisement featuring a photo of President Obama depicted as Buddha. American lawmakers are pressing China for action on currency and high-tech trade in talks this week, and an impending Washington visit by President Hu Jintao has raised expectations Beijing might offer concessions. (Associated Press)

"It's the biggest challenge we face," said David Levy, chairman of the Jerome Levy Forecasting Center, noting that fervent attempts by the Obama administration to persuade China to take action have proved largely fruitless over the past year.

"Every dollar of the trade gap is a dollar of wealth transfer" to the rest of the world, he said. While China boasts that its double-digit economic growth was an engine for the world economy during the recession, "on balance China is more of a caboose than a locomotive. It's sucking profits out of the world economy" with its persistent trade surpluses, he said.

The U.S. faces a "dilemma" over what to do because it has been unable to get substantial cooperation from China, Mr. Levy said. Unilateral action, including tariffs and other limits on Chinese imports, he said, runs the risk of triggering a potentially worldwide trade war.

China could retaliate not only by limiting imports of such vital U.S. exports as airplanes and heavy construction equipment, but also as the biggest buyer of U.S. Treasury bonds. It could trigger a financial crisis by boycotting purchases of U.S. debt at a time when the American budget deficit has surged to well over $1 trillion a year.

The frustration over what to do has led to increasingly blunt criticism and finger-pointing between the world's No. 1 and No. 2 economies. Even normally circumspect leaders such as Federal Reserve Chairman Ben S. Bernanke have entered the fray.

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