The imbalanced China trade relationship remains a top priority

U.S.-China trade relations will be tested again this year as imports bounce back from 2009 lows and American factories seek protection from lower-priced Chinese competition that they blame for lost sales and jobs.

But concern about damaging the fragile U.S. economic recovery or alienating the largest foreign holder of U.S. debt is likely to limit any action by President Barack Obama or the U.S. Congress to force China to raise the value of its currency, the biggest irritant in the trade relationship.

“I’d be surprised if there is major restrictive legislation,” said Ed Gresser, director of the trade and global markets project at the Democratic Leadership Council, a centrist Democratic group. Democrats control Congress.

Instead, most of the tension is likely to come from U.S. companies filing new import injury cases against China at the Commerce Department or the U.S. government filing new trade complaints against Beijing at the World Trade Organization.

U.S. steel producers, other industry groups and union workers have filed dozens of cases in recent years accusing Chinese competitors of receiving government subsidies and selling goods in the United States at unfairly low prices.

With a few exceptions, the International Trade Commission (ITC) has approved substantial tariffs under anti-dumping and countervailing duty orders renewable every five years.

Roger Schagrin, a lawyer involved in some of the biggest cases against China, said he sees fertile ground for “a lot more dumping and subsidy cases” in 2010.

“Name the product, China has created massive overcapacity. They’re going to export it. It’s not going to be consumed in China. … That creates a natural conflict,” Schagrin said.

In 2009, the trade action that received the most attention was Obama’s decision, in response to a complaint from union workers, to slap a 35 percent tariff on Chinese-made tires.

It was a milestone event because former President George W. Bush had turned down all such requests for relief under a provision of U.S. trade law known as Section 421.

Despite predictions that Obama would face a flood of similar cases, no new petitions have been filed yet.

‘Sensitized to the Controversy’

“The fact that President Obama used that discretion once, doesn’t necessarily mean that he will use it in every case. … I think the administration is sensitized to the controversy it caused,” said Walter Spak, a lawyer at White & Case, which successfully defended Chinese paper companies at the ITC.

But rising Chinese exports to the United States as the nation climbs out of recession open the door for more Section 421 and other injury cases, while Chinese companies have shown willingness to bring their own complaints against U.S. firms.

But as dramatic as some individual cases can be, they still cover only a tiny volume of trade and so it is an exaggeration to call such actions a trade war, Spak said.

Chinese exports to the United States peaked at $34 billion a month in October 2008, just as the full extent of the global financial crisis was being realized in the United States.

By February 2009, they had fallen to less than $19 billion. But since then, they have risen more or less steadily to $29.5 billion in October 2009, the most recent data.

Annual Chinese exports to the United States could approach $300 billion in 2009 when final statistics are in, down from $338 billion in 2008. That’s a much smaller drop than for many other countries that export products into the United States.

“The robust growth of China’s economy is going to overwhelm any routine trade barriers put into place,” said Daniel Griswold of the Cato Institute think tank.

Although Obama angered China with his tires decision, he pleased Beijing by refusing to formally label it as a currency manipulator in a semi-annual U.S. Treasury Department report.

Obama is unlikely to change that stance even though the United States would be justified in challenging China’s currency actions as a violation of trade rules, Schagrin said.

Meanwhile, there have been threats in the U.S. Congress for years to pass legislation aimed at China based on the belief that Beijing gives its companies an unfair trade advantage by maintaining an artificially cheap currency.

Gresser said it was unlikely that U.S. congressional leaders will allow any action that could spook financial markets by raising fears of an all-out trade war.

The AFL-CIO, the largest U.S. labor organization, could try to prod Obama into action on the currency issue, said Thea Lee, deputy chief of staff for the 11.5-million-member AFL-CIO.

The labor group is considering filing a petition asking Obama to formally investigate whether China’s currency policy is an unfair trade practice and a second one asking for a probe of China’s internal labor practices, Lee said.

The Bush administration rejected similar AFL-CIO requests.

“The imbalanced China trade relationship remains a top priority for us,” Lee said by e-mail.

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