U.S. and China Ready Weapons for Trade War

By JAMES GERSTENZANG

May 16, 1996 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

Edging closer to a trade war, U.S. officials on Wednesday announced massive tariffs on Chinese imports and China responded with a vague threat to impose steep duties on a variety of American-made goods.

U.S. officials said that the tariffs would be levied on Chinese imports ranging from surfboards to silk shirts in retaliation for China’s failure to halt pirating of compact discs, computer software and other American goods protected by copyrights.

“When China pirates American products, it is taking the ideas, the enterprise and the jobs of these industries and the workers they represent. We will not tolerate this,” said Charlene Barshefsky, acting U.S. trade representative.

The Chinese response, regarded by U.S. officials as largely hollow, threatened to impose unspecified tariffs on American-made vegetable oils and telecommunications equipment and to halt imports of American movies and music CDs, the very items it is accused of illegally copying.

The tit-for-tat measures lay bare not only the sour state of the U.S.-Chinese relationship but also the limited options available to President Clinton as the government seeks to protect America’s commercial interests around the world.

“We have inadvertently lapsed into a strategy which relies on sanctions and public scolding and threats,” said Jeffrey E. Garten, dean of the Yale University School of Management and, until recently, the administration’s undersecretary of commerce for international affairs.

“When two countries, which are very powerful in their own right, have this kind of relationship, it is inconceivable it can be a viable relationship. The tragedy is the United States has almost no choice but to implement sanctions,” he said.

Both nations are following a script that they used at the start of 1995, when the United States not only announced sanctions valued at $1.08 billion, but actually imposed them for several hours, and China responded with a sanctions list similar to the one it issued on Wednesday.

But that dispute dissipated on Feb. 26, hours after a deadline was reached, when China agreed to a detailed plan spelling out the steps it would take to end the unlicensed copying of U.S. “intellectual property,” a term used to describe the fruits of American creativity, ranging from compact discs to videotapes to pharmaceutical products.

The Clinton administration now says China has not lived up to the terms of the agreement, closing only some of the more than 30 factories some experts say are producing as many as 200 million knockoff CDs and other protected materials every year. The Chinese argue that the United States is demanding too much in too little time.

Beginning the sanctions process all over again on Wednesday, Barshefsky announced a hit list of Chinese products worth $3 billion, the largest sanctions package in U.S. history.

From this set, $2 billion worth of goods, roughly equal to the $2.3-billion value attached to the pirated U.S. goods, will be chosen over the next month as targets for “punitive” tariffs--taxes of 100% or more that would be assessed on the import value of the specific items.

Unless China takes unspecified measures to end production of the knockoffs, much of it believed to be manufactured in factories run by state offices or the People’s Liberation Army, the sanctions would take effect on or after June 17. They would be imposed on a variety of Chinese goods, among them bicycles, swimwear, coffee makers and cigar boxes.

While some prices paid by consumers for the targeted goods could nearly double, the increases could be limited if retailers reduce their markups, accepting smaller profits to keep their goods priced competitively.

Administration officials took issue with complaints from retailers that the tariffs would hurt customers who depend on lower-priced imports from China to hold down their clothing budgets.

Many of the goods are available from other countries, a senior trade official said, and $750 million of the tariffs are aimed at products made of silk, “a luxury item.”

As for China’s retaliation, the official said: “It’s the same as last year. They have a need to demonstrate [that] they will respond to the U.S. action--that’s a domestic political need.”

In addition, the official said, China’s ambassador to the United States, Li Daoyu, responded in a “subdued” manner when told of the U.S. decision during a meeting Tuesday evening with Barshefsky--suggesting that Beijing had not as yet decided whether to extend the confrontation.

But at its heart, the issue involves more than just consumer goods or even the jobs attached to the foreign sales. Rather, the dispute goes to the center of the Clinton administration’s economic and political focus on trade policy and the limits on commercial diplomacy and its impact on the United States’ crucial relationship with China.

“We need to demonstrate a firmness, without having it lapse over into the broader political relationship” with China, said Stuart E. Eizenstat, undersecretary of commerce for international affairs.

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Trade War Hit List

U.S. officials have threatened to place massive tariffs on Chinese imports, in retaliation against China’s failure to halt the pirating of compact discs, computer software and other American goods. China has responded by threatening tariffs on U.S. goods coming into China. Among the items involved:

CHINESE-MADE GOODS

* Electronics such as coffee makers, telephones, fax machines and cellular telephones

* Various consumer items, including jewelry, surfboards, bicycles and cotton apparel

* Wool apparel

* Man-made fiber apparel

* Non-silk blend apparel

* Silk apparel

* Home furnishings, including sheets

U.S.-MADE GOODS

* Buses, cars

* Spare parts for cars

* Movies