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Hong Kong Experts Predict Mounting US-China Trade Tension

Hong Kong harbor (file photo)
As concern grows in Washington about China's record trade surplus with the United States, experts in Hong Kong are predicting that bi-lateral tensions are likely to persist and that the trade deficit will continue to expand.

Hong Kong University Professor Michael Enright says trade tension is inevitable as China's economy grows and U.S. economic links with China continue to increase.

Benefiting from low-cost labor and huge export demand China has been the world's fastest-growing big economy for the past two decades. U.S. investors have been pouring money into the Chinese economy and then exporting manufactured products back to the U.S. market.

The U.S. trade deficit with China is growing as a result. Last year it reached $162 billion, a 31 percent increase from 2003.

Mr. Enright says U.S.-China trade tension is similar to U.S.-Japanese trade friction 20 years ago, when the Japanese economy was soaring and seemed destined to eclipse that of the United States.

"The politics will be there," he said. "The tension will be there, just as they were vis-à-vis the United States and Japan. But eventually, the United States and Japan learned how to get along."

In Congress there are mounting calls for punitive trade action against China. One measure would impose an additional 27 percent import tariff against Chinese goods. Advocates say the Chinese currency is undervalued by at least that amount. Treasury Secretary John Snow says he expects the Chinese will adjust their exchange rate within six months.

Mike Rowse, who heads Hong Kong's investment promotion agency, says Congress and the Bush administration are making a mistake by advocating a Chinese currency revaluation.

Such a move by the Chinese, says Mr. Rowse, is unlikely to make much difference in the bilateral trade imbalance. He says that China's overall trade surplus [with the entire world] is not particularly large, and does not require a currency revaluation.

"This idea that there is a magic wand that is going to solve America's problems by China suddenly revaluing by 15, 25, 30 percent, whatever the number, I have to say, is regarded on this side of the Pacific as awfully naïve," he said.

But Michael Enright predicts that the currency issue is unlikely to go away. He says it is a simple figure that people can easily focus on, and an identifiable percentage of the U.S.-China trade deficit.

"That will be the bigger issue. Because that is something that people can say, 'Oh, it is, whatever, 28 point-whatever percent,'" he said.

Investor and author Jim Rogers takes a pessimistic view of the future. He thinks U.S.-Chinese trade tension will worsen as the two countries clash over control of the natural resources needed for economic growth.

China's imports of iron ore, oil, and other natural resources have been surging. Rising Chinese demand is cited as a principal factor in the doubling of oil prices during the past two years.

For the United States, Mr. Rogers says, the challenge is how to come to terms with the rise of China.

"Unfortunately, most people in America do not understand what is happening in China," he said. "And they are anti-China, which is mind-boggling to me because, as you heard, I am teaching my baby girl Chinese. Because China is going to be the great country of the next century."

Addressing a commodities conference in Hong Kong Wednesday, Mr. Rogers said that by cooperating economically, the United States and China could both benefit.

"The Chinese and the Americans and everybody else should be cooperating and getting rich together. Unfortunately, history has shown that is not the way the world works," he said.

The experts in Hong Kong generally agree that instead of focusing on external issues like the exchange rate or trade practices in China, the Americans should save more, consume less and bring their own financial accounts into balance.