quote:

China quandary will confront next president
Trade deficit and Chinese holdings of U.S. bonds complicate relations
By Tom Curry
National affairs writer
updated 8:17 a.m. PT, Mon., June. 23, 2008
WASHINGTON - Over the next few months, msnbc.com is presenting a weekly series Briefing Book: Issues '08 assessing some of the issues and controversies that the next president must confront once he takes the oath of office on Jan 20.

These weekly primers will define the problem or issue; outline the candidates' positions on the topic; evaluate shifts in the candidates' positions or votes; and forecast potential hurdles for the next president.

We begin with China, the world’s most populous nation, the fastest growing large economy, and the host of the Olympics in August. China is both America’s second largest trading partner and a growing military rival to the United States.

Why it’s a problem
Americans buy billions of dollars more of Chinese goods than the Chinese buy of American goods, leading to a large and growing trade imbalance. For every Boeing 747 being sold to a Chinese airline, billion of dollars worth of electronics, toys, and clothing is sold to American customers.

American manufacturers charge that China is manipulating its currency to gain advantage over U.S. firms, leading some in Congress to call for imposing punitive duties on Chinese imports.

As of the end of April, Chinese investors owned more than $500 billion of U.S. Treasury bonds, which made the Chinese second only to the Japanese as foreign holders of U.S. Treasury debt. These holdings give the Chinese leverage over the finances of the U.S. government and the value of the dollar.
Meanwhile, military tensions have been growing between Washington and Beijing.

Last year, the Chinese suddenly rejected a long-arranged port call for the U.S. aircraft carrier Kitty Hawk in Hong Kong.

The Chinese military also destroyed one of China's weather satellites with a ground-based missile, a step toward the militarization of outer space.

The United States has antagonized the Beijing regime by selling arms to Taiwan and awarding a congressional gold medal to the Tibetan spiritual leader, the Dalai Lama.

The summer Olympics open in China on Aug. 8. The build-up to the Olympics featured a crackdown on Tibetan nationalists, which in turn sparked calls for Olympic boycotts.

Human rights activists have also fired criticism at the Beijing regime for doing business with repressive regimes in Africa, especially in Sudan.

Where the candidates stand
Democratic presidential candidate Sen. Obama said while campaigning in Pennsylvania on April 15, that as president he would say to the Chinese government, “You guys keep on manipulating your currency, we are going to start shutting off access to some of our markets. If you are doing the right thing and not trying to manipulate your currencies to our disadvantage then you will have access.”


He also promised last year, after a series of safety and lead contamination problems with Chinese toys, that if elected president he would ban their import.

"I would stop the import of all toys from China,” he said at one point in New Hampshire.

He added in Iowa, “I will work with China to keep harmful toys off our shelves. But I'll also immediately take steps to ensure that all toys are independently tested before they reach our shores and I'll significantly increase penalties on companies that break the rules….The more toys we import from China, the more risk to our children.”


Obama supports a bill that would permit U.S. companies to seek punitive duties on Chinese imports based on the alleged undervaluation of its currency.

Obama said last April that if the Chinese do not help stop the violence in Darfur and respect Tibetan rights, President Bush should boycott the opening ceremonies of the Olympics in Beijing this summer.

McCain said that if Beijing did not cease its repression of Tibetans and of political dissidents, he would not attend the opening ceremonies of the Beijing Olympics this summer and he urged Bush to rethink his decision to do so.

McCain has also warned of the Beijing regime’s military buildup. “When China builds new submarines, adds hundreds of new jet fighters, modernizes its arsenal of strategic ballistic missiles, and tests anti-satellite weapons, the United States legitimately must question the intent of such provocative acts,” he said last year.

He also criticized China’s cozy relations with what he called “pariah states such as Burma, Sudan, and Zimbabwe.”

Unanswered questions
Would Obama really start shutting off Chinese access to its American customers? If so, how would that action not be in violation of World Trade Organization rules? How would China retaliate if he did so?

What can McCain do about China’s military strength, apart from voicing worry about it? Will such fretting cause China’s leaders to think of the U.S. as a “paper tiger,” a loud critic who can’t back up its words with actions?

Evolution and shifts in position
Both McCain and Obama have been fairly consistent in their views on China.

How they have voted
In 2005, McCain voted to table (that is, kill) an amendment offered by Sen. Charles Schumer, D-N.Y. and Sen. Lindsey Graham, R- S.C., that would have imposed a 27.5 percent tax on imported goods from China, as a way of punishing China for its alleged manipulation of its currency in order to boost Chinese exports.

Obama voted against the effort to kill the Schumer-Graham amendment.

In 1999, McCain voted for the landmark bill to give permanent nondiscriminatory treatment (normal trade relations treatment) to China. Enactment of this bill helped greatly expand American trade with China.

McCain voted against amendments proposed by Sen. Paul Wellstone, D- Minn., and Sen. Jesse Helms, R- N.C. that would have blocked normal trade relations until the Beijing government stopped its use of “reeducation through labor” camps to imprison political dissidents and released Chinese Christians, Buddhists, and Muslims whom Beijing had imprisoned because they openly practiced or professed their faith.

Surprises for the new president
Charles Freeman, the former chief China trade negotiator for the United States, said, “All you would need is a slight downturn in the Chinese economy" to cause a significant strain in U.S.-China relations.

The Chinese economy, he notes, "has run at about 10 percent growth a year. They need to find jobs for 50,000 people a day just to keep ahead of the game. Say they dropped to 7.5 percent growth, the number of unemployed people starts adding up pretty quick.”

Freeman, who's now the chair of Chinese studies at the Center for Strategic and International Studies in Washington, explained, “Almost certainly the downturn would come as a result of global circumstances, including a downturn in the number of exports to the United States."

He said, "What the Chinese government would almost certainly do is to find some outside actor to blame rather than have the Chinese population say, ‘It’s our stupid government.’ So almost certainly they would try to inflame Chinese nationalism. That would create challenges for the United States in dealing with an angry China.”

If the new president was “looking to try to stimulate China’s help on North Korea or Iran or whatever it might be, that could be a real problem.”

“Is that likely to happen? No, but it is certainly out there. If you’ve been averaging ten percent growth for years, there is a point at which what goes up must come down.”

Another risk is a flare-up of tension over Taiwan, Freeman said.

“Things are looking good right now, but if the rapprochement between Beijing and Taipei doesn’t produce the benefits that people on both sides of the Straits are hoping for, you could run into confrontation pretty easily. And that would bring the United States in by default.”


© 2008 MSNBC Interactive