posted April 21, 2006 12:31 PM            

Bush may be the leader of the world's only superpower, but when he talks to the Chinese, it's like discussing an overdue loan with his banker. There's not much leverage.

The summit on Thursday was Hu's first visit to the White House since he became China's top leader three years ago. But he and Bush have met five times in just the past year, including a trip Bush made to Beijing in November.

At each of those meetings, the list of U.S. trade demands has been the same: China must stop unfairly depressing the value of its currency to gain trade advantages; it must halt rampant copyright piracy that is costing American companies billions of dollars in lost sales, and it must open its markets wider to U.S. exports.

The urgency of those demands has grown as America's trade deficit with China has soared; the trade imbalance hit another all-time high last year of $202 billion.

That deficit, which represented more than one-fourth of America's record imbalance with the world in 2005, has sparked growing unrest on Capitol Hill and prompted a spate of bills to penalize China unless it halts trade practices that critics blame for contributing to the loss of nearly 3 million manufacturing jobs since Bush took office in 2001.

With an eye toward the November congressional elections, the Bush administration has stepped up its own rhetoric. But so far the tough talk has produced few results.

Hu's comments during his half-day summit with Bush failed to go farther than promises he has made before. The biggest disappointment came in the area where the administration had once held the highest hopes, that China would commit to moving faster to allow its currency to rise in value against the dollar. A weaker dollar against the yuan would make American goods more competitive against Chinese products.

But the blunt reality is that the Bush administration has little leverage to make China do more. Since China joined the World Trade Organization in 2001, the United States can no longer threaten to impose unilateral sanctions as the Clinton administration threatened to do in the mid-1990s in a copyright piracy fight of that era.

The United States can bring WTO cases against China as it did last month in a dispute over auto parts. But on currency manipulation — the area that promises to make the biggest difference in reducing America's trade imbalance — experts say the United States would have slim chances of prevailing before the WTO, in part because no country has faced those charges before.

Members of Congress are pushing legislation that would slam all Chinese goods with penalty tariffs of 27.5 percent if China does not move faster to allow its currency to rise in value. But such a draconian measure would basically penalize American consumers who have grown to like the low prices offered by a flood of Chinese imports of clothes, athletic shoes, toys and televisions.

"It's very easy to talk about limiting imports of bedding or shoes or whatever, but once you do it and prices shoot up, then you will get a backlash," said Gary Hufbauer, a trade economist at the Institute for International Economics, a Washington think tank.

Such an action could also spark a trade war, with China retaliating against U.S. exporters, either directly by winning a WTO case that the U.S. tariffs violate WTO rules or more subtly by making sure that U.S. companies like Boeing Co. don't get the next big round of contracts.

Bush was also in the delicate position during Hu's visit of trying to get trade concessions from China while at the same time seeking China's support on a wide range of foreign policy issues, including dealing with the nuclear ambitious of Iran and North Korea.

And then there is the issue of China's vast holdings of U.S. assets. The massive trade deficits the United States has run up with China has meant the transfer of billions of dollars into Chinese hands. That money is used to buy U.S. Treasury securities and other assets.

The deficits have gotten so huge, that China's holdings have ballooned. China is now the second largest holder of U.S. government debt, with $265.2 billion in Treasury securities, and its total foreign reserves have just surpassed Japan's to become the largest in the world.

The willingness of the Chinese to hold that debt has helped to keep U.S. interest rates low, which has been a boon to American home buyers and other borrowers. But if for some reason the Chinese suddenly reversed policy and started dumping U.S. assets in favor of parking their reserves in other countries, that could have a serious impact on the U.S. economy by sending U.S. interest rates up sharply.

The predicament of being in hock to China and other foreign countries was highlighted on the day of Hu's visit by an editorial cartoon in The Washington Post which showed Bush and Hu meeting.

In the cartoon, Bush says, "I'm the leader of the most prosperous and powerful nation in the world today."

To which Hu responds, "I'm the repo man."

___

EDITOR'S NOTE — Martin Crutsinger has covered economics issues in Washington since 1984.

posted April 21, 2006 04:12 PM            

Hu as the repo man, eh acoustic?

What imbecilic trash. China..among other nations is holding US bonds with both short and long maturity dates.

So acoustic, exactly what is Hu going to repo?

Hu can hold the bonds to maturity and get the face amount paid. Hu can sell the bonds on the open bond markets for whatever they will bring but Hu isn't going to repo anything. Those bonds give no collateral to the holder. It's the good faith and credit of the United States which secures those bonds.

If anyone has anyone over the barrel it's the US who has China over the barrel

So, what is China gonna do? Stop sending their garbage exports to the United States

Well, that would make the day of every trade unionist and trade union in the country.

That would make the day of every other US trading partner in the world, Japan, Europe, the rest of Asia, Canada, South and Central America...without exception. Trading partners who would see an opportunity to increase their exports to the US...and expand their own economies.

That would make my day too because I see no reason to pump up the Chinese economy by importing their junk...while they use the money from exports to build their military strength.

Without the ability to export goods to the US, the Chinese economy would collapse within a year...at most but I suspect much more quickly than that.

So, is China going to attack Taiwan...and have every capitol ship in their navy laying on the bottom of the China Sea?

Are they going to start selling missile and nuclear technology to Iran? Whoops, they're already doing that.

Are they going to stop helping with the North Korea nuclear weapons talks? They aren't being helpful now.

If anyone needs leverage, it's China who needs leverage with the US, not the other way around.

China is not now and has not in the past been helpful.

In fact, Bush could demand China revalue their currency to reflect it's true value. That would raise the price of Chinese exports to every nation which imports them and that's something the Chinese have resisted.

posted April 22, 2006 01:01 PM              

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