China Adds Threat to U.S. Trade Tensions

Fears that the United States is on a collision course with its major trading partners intensified Thursday after China threatened to impose tariffs on U.S. goods and abruptly canceled a trip to buy American farm products.

The actions by Beijing followed the Bush administration’s reluctance to lift tariffs on imported steel and its decision this week to restrict imports of Chinese-made bras, nightgowns and knit fabrics. Domestic textile manufacturers said they were being hurt by a surge in those products from China.

The budding trade war with China and the European Union, which has threatened to retaliate unless Washington removes the steel duties, strangely came on a day when U.S. trade officials hailed what they said were promising developments in a plan to create the world’s biggest free-trade zone.

In a summit in Miami, trade ministers from across the Americas signed a declaration providing for a framework for talks to establish the Free Trade Area of Americas -- a trading bloc that would stretch from Alaska to the tip of South America.

But participants also acknowledged that the meeting ended Thursday without agreement on key issues, such as agricultural subsidies and investment rules, and that there was significant work ahead if they were to meet the January 2005 deadline to write and ratify the pact.

Yet even as Bush administration officials were touting the progress made in Miami, concerns about escalating trade tensions prompted an unusually strong call for restraint from Federal Reserve Chairman Alan Greenspan and other leading financial chiefs.

In comments at a conference in Washington, Greenspan did not directly criticize the Bush administration but warned that “clouds of emerging protectionism” could “significantly erode” the flexibility of the global economy.

Those sentiments were echoed Thursday by other Federal Reserve officials and leaders of the World Bank and the International Monetary Fund.

The growing trade spat already has rattled currency and stock markets, and investors have expressed concerns that China, the third-largest buyer of U.S. Treasuries, might pull back from the U.S. market, which depends on foreign buyers to fund a growing deficit.

“Central bankers don’t usually talk about this kind of thing, but all these senior officials are absolutely right to be worried,” said Gary Hufbauer, a trade specialist at the Institute for International Economics in Washington. “What’s been done so far are fairly minor steps, but these things have a way of snowballing.”

A spread of protectionism would be particularly bad for trade-dependent states such as California, where farmers and high-tech firms had just begun to see a recovery in their hard-hit export markets.

California cotton producers who had hoped to be beneficiaries of China’s 10-day buying mission now worry that the world’s leading cotton consumer will turn to alternative suppliers. China was the top purchaser of California cotton this season, recently placing a record single order of $1.3 million.

“The industry is certainly concerned about it,” said Mark Bagby, a spokesman for Calcot, a Bakersfield-based cooperative that is the nation’s second-largest cotton exporter. “The thing to watch is whether they actually begin to cancel sales already on the books.”

Meanwhile, European Union trade chief Pascal Lamy insisted Thursday that the EU would not back down from imposing $2.2 billion in duties on U.S. textiles, produce and other goods next month, after a World Trade Organization ruling that U.S. steel tariffs violated global trade rules.

In England, President Bush told reporters that he was reviewing the steel tariff issue and would make a “timely decision.” U.S. steel producers reportedly said they were negotiating a deal with the Bush administration to phase out the steel tariffs early in hopes of heading off a transatlantic trade war.

Commerce Secretary Don Evans denied that the U.S. government was heading down a protectionist path with its latest action against Chinese imports.

Faced with pressure over eroding U.S. manufacturing jobs and a surging trade deficit with China, on track to exceed last year’s $103 billion, the Commerce Department agreed this week to impose “safeguard” measures that would curtail the import of Chinese-made bras, dressing gowns and knit fabric.

Evans said the U.S. was simply “enforcing our trade laws” to “make it clear to the leadership of China and the people of America that we think free trade means more jobs for Americans. But it’s got to be fair trade.”

Asked about the threats of retaliation by China, Evans expressed confidence that the U.S. government would be able to negotiate a compromise with Beijing. U.S. producers hoped China would agree to a broad agreement voluntarily restricting its exports of apparel and textiles.

“They have certainly indicated a willingness, as have we, to sit down in a spirit of good faith and goodwill and talk about the issues,” Evans said.

But in Beijing on Thursday, Chinese officials expressed extreme displeasure with the recent textile curbs in a meeting with U.S. Ambassador Clark Randt, according to the New China News Agency. A Chinese official said that the U.S. actions violated global trade laws and that his government reserved the right to retaliate, though he did not specify which products might be singled out.

Just a week earlier, China had announced contracts valued at more than $6 billion for the purchase of 30 Boeing jets and the import of U.S.-made cars.

The escalating spat threatens to put a damper on Chinese Premier Wen Jiabao’s first visit to Washington in early December. Officials in both countries had hoped Wen’s trip would be a high-visibility confirmation of a transpacific relationship that had improved dramatically because of China’s support of the U.S.-led war on terrorism and the prominent role its leaders have played in defusing tensions on the Korean peninsula.

An escalating trade rift between the U.S. and China could have serious consequences for Japan as well. In the last few years, Japan’s leading manufacturers have stepped up their investment in China, which has become a key base for producing consumer electronics, appliances and other products destined for the United States and other countries. That makes them vulnerable to any disruption in the flow of goods between the U.S. and China, now Japan’s leading trading partners.

Although the European Union has taken the lead in battling the steel tariffs, Japan, South Korea and other producing countries also have been hurt by the U.S. restrictions.

With the breakdown of WTO negotiations earlier this year, Asian countries have become more aggressive about negotiating their own preferential trade deals. Those include an ambitious plan by China to forge a free-trade agreement with Southeast Asia, an effort that was warmly received by leaders of the Assn. of Southeast Asian Nations in spite of long-held fears of Chinese domination.