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China's Huge Trade Surplus with US Erodes Free Trade Support


A trade conference in Washington Tuesday focused on the U.S. China trade relationship, in which China has a huge and growing surplus.

Experts say traditional bipartisan support in Congress of free trade is being eroded by China's unwillingness to take measures to redress the trade imbalance. "Our trade agenda is going to be a captive of discontent with our trade relationship with China, Including their currency manipulation, their failure to honor intellectual property rights, their discriminatory tax and subsidy structures," said Phil English, a key congressional Republican on trade policy in the House of Representatives.

Mr. English says members of Congress are increasingly frustrated by what they see as a continuing loss of manufacturing and now service jobs to China. His counterpart among Democrats, Sandy Levin, accuses the Bush administration of failing to enforce U.S. trade law in dealing with China. "So, essentially we've had a once over lightly approach by this administration. Secretaries go over and come back. They say they've said this or that, usually privately. And nothing really happens," he noted.

Much of the discontent relates to China's refusal to adjust its fixed rate currency link to the dollar that has been unchanged for 10 years. "I think China will be a target and should be a target as far as the exchange rate is concerned because this policy really is contributing to trade disequilibrium," said Mac Destler, an economist at the University of Maryland, who is among the many experts who believe the currency peg keeps the yuan undervalued and gives an advantage to Chinese products in the U.S market.

But banker Robert Rubin, treasury secretary from 1995 to 1999, said if China's revalues the yuan the country may cut back on its purchases of U.S. government bonds. That, he said, could send the dollar even lower and interest rates higher.

China is, after Japan, the biggest purchaser of US bonds and currently holds treasury securities worth $194 billion. Mr. Rubin called on the Bush administration to reduce the U.S. fiscal deficit. And concerning the yuan, cautioned the administration to be careful what it wishes for.

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