In pledging to lure offshore jobs back to the U.S. and target unfair Chinese trade practices, President Obama sought in his State of the Union address to dispel criticisms that he has been too soft in dealing with the world’s second-largest economy.
Trade relations with China could be a hot campaign issue in the coming months. Republican presidential candidate Mitt Romney has advocated that the U.S. label China a currency “manipulator” for holding down the value of the yuan against the dollar — a charge that carries with it the potential for punitive action.
Many people say China’s significantly undervalued currency gives its exporters an unfair advantage in selling goods to the U.S. at cheaper prices. Yet the Obama administration has repeatedly refrained from taking such a step, even as it has pressed China on a number of trade issues.
Obama’s speech Tuesday marked a sharpening of tone from his address a year ago when he spoke about the current “generation’s Sputnik moment.” He also pointed to China’s ascendance in building the largest solar research facility and fastest supercomputer as examples of the kinds of global competitive challenges that the U.S. faces.
He said he would set up a new enforcement unit to investigate “unfair trade practices in countries like China.” It was unclear what that unit would do that’s different from the role of the U.S. trade representative’s office, which develops trade policies and coordinates disputes, but the president’s call to get tougher with China is likely to add to the recently increased commercial tensions between the two countries.
The Chinese last month imposed duties on large cars and sport utility vehicles from the U.S., alleging they were given improper government subsidies and dumped into China at below-market prices. The U.S. has said the claims are without merit, and some analysts believe Beijing acted in retaliation for similar charges that Washington brought on Chinese exports of solar panels to the U.S.
In his address Tuesday, Obama credited his administration’s move two years ago to impose duties on low-end Chinese tires for saving more than 1,000 American jobs. The U.S.-China Business Council, which represents American companies doing business in China, took issue with that assertion, suggesting that the tariffs had no positive effect on U.S. jobs or the economy.
At the same time, the council’s president, John Frisbie, said in a statement that the group “looks forward to working with the Trade Enforcement Unit to advance common-sense and rules-based solutions that create jobs for American workers and opportunities for American companies.”
While unions and some manufacturing groups lauded Obama’s plans to crack down on unfair trading partners, the Business Council’s cautious response underscores the concerns that large American companies have about upsetting commercial ties with China, where many corporations have invested heavily and which they regard as a primary place both for production and sales of their goods.
In China, the response to Obama’s announcement of a new enforcement unit was muted at best, perhaps drowned out by the barrage of fireworks across the country as it continues to celebrate the weeklong Spring Festival national holiday.
“What’s worth noting is that Obama mentioned China five times in his State of the Union speech,” wrote the Beijing-based Legal Evening News, one of the few Chinese newspapers to acknowledge the mention of China in the president’s address. “Every time it was about the economy. He repeatedly attributed the struggle of the U.S. economy to China’s rapid growth.”
China’s Ministry of Foreign Affairs was closed and did not respond to a request for comment. But judging by past reactions, Beijing probably will dismiss the moves as posturing for political advantage.
Shi Yinhong, professor of international relations at Remin University in Beijing, said Sino-American relations will be tested in the coming months. China’s leaders are irked that Washington is reasserting its influence in Asia, and worried that their economy is slowing too fast. Combine that with the U.S. presidential election and the transition of top leadership in Beijing later this year and the situation could grow testy.
“The relationship could become more tense than it has in a long time,” Shi said. “Domestic politics always comes first.”
A quick gauge of where relations are headed comes next month when Chinese Vice President Xi Jinping visits the U.S. The man slated to become the next president of China probably will face long-held complaints about an undervalued Chinese currency, closed consumer markets and the state of counterfeiting and piracy.
Though the two sides have sparred through the WTO, Beijing and Washington have so far averted a full-blown trade war. The U.S., after all, is China’s second-largest export market and China is the largest foreign buyer of U.S. Treasuries.
Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics in Beijing, said China’s leaders probably will stay quiet despite the heightened rhetoric against its trade policies.
“I don’t think the Chinese have any advantage to gain by interjecting in this debate,” Chovanec said. “They probably want to lie low and draw as little attention as possible.”