No papering it over
NOT TOO MANY Americans will be much affected by a U.S. tariff on Chinese coated paper, and even fewer noticed when the Commerce Department announced the move last week. Yet the decision to impose a 10% to 20% import penalty could be the opening shot in a trade war between the world’s largest economy and its fastest growing.
It’s a war that neither side can win, and one that the U.S. should take pains to avoid. Unfortunately, Congress may make that impossible.
For 20 years, it has been U.S. policy not to impose “countervailing” duties -- basically tariffs on goods from state-subsidized industries -- on China. The theory was that, in a state-controlled economy, pretty much everything is subsidized, so it’s pointless to pick out a single industry for punishment. With its announcement last week, however, the Commerce Department signaled that it now considers China a market economy, not a state-controlled economy. And as its welcoming gift to the world of market economies, the U.S. is presenting China with ... a new tariff.
The move is troubling practically as well. It could open the door to tariffs on other Chinese imports, such as steel and textiles. The Commerce Department is not scheduled to finalize its decision until October, although the tariffs take effect immediately. China has already called the tariff unacceptable and says it reserves the right to challenge it, probably before the World Trade Organization.
Congress, meanwhile, alarmed at China’s $230-billion trade surplus, is considering a variety of protectionist measures to bring the account into balance. Some could severely damage the economies of both countries, like a bill from Sen. Byron L. Dorgan (D-N.D.) to revoke China’s normal trade-relations status. A proposal from Sens. Charles E. Schumer (D-N.Y.) and Lindsey Graham (R-S.C.) that threatened a 27% tariff on all Chinese imports was withdrawn last year, but the senators are working on a new bill that could hurt U.S. consumers nearly as much.
The U.S.-China trade deficit exists mostly because American consumers buy a lot of low-priced goods from China -- and China maintains those low prices by keeping its currency undervalued compared to the dollar. This is a legitimate source of frustration for many in Congress, but it’s not worth a trade war. By slapping a tariff on Chinese paper, the Bush administration may think it is appeasing congressional protectionists. But there’s no guarantee they’ll be satisfied.
