Is there a connection between the lousy state of U.S.-European trade relations and the transatlantic rift over the war in Iraq? Apparently not. Although diplomatic relations between the United States and Europe were badly strained by the war — and further soured when countries that opposed the war were forbidden by the Bush Administration to bid on Iraqi reconstruction contracts — most observers say the clash over the war has not been reflected in trade.
In March, the U.S. Council on Foreign Relations issued a report that frets over the serious deterioration in U.S.-European relations as a result of the war. “Although there have been frequent disputes over tariffs and subsidies through the years, the Task Force notes that the Iraqi crisis had little discernible effect on patterns of European-American trade and investment,” the report notes. Indeed, it adds, “a greater public emphasis on the economic benefits of the relationship might help leaders on both sides of the Atlantic resolve, or at least minimize, their political differences.” —T.R.
If things are bad between the United States and its top trading partner, the European Union, they aren’t much better with China — which is this country’s fourth-largest trading partner, after Mexico and Canada. During a December visit, Chinese Premier Wen Jiabao felt compelled to begin a speech in New York by assuring his audience that “I have come to this country to seek friendship and cooperation, and not to fight a trade war.”
Just a few days after Wen departed, however, the United States initiated a dumping investigation against the Chinese furniture industry. The United States has already instituted dumping tariffs against Chinese textiles, televisions, and iron pipes.
China’s $125 billion trade surplus with America is a sore spot for the United States, along with its refusal to revalue the renminbi and its poor performance in protecting the intellectual property of U.S. companies. But China’s enormous market and its role as prodigious purchaser of U.S. Treasury securities have traditionally earned it kid-glove treatment from the United States.
That may be changing.
Just as the mature trade relationship between the United States and Europe is beginning to expose intractable differences between cultures, so the relatively immature one with China is giving rise to offenses America feels it can no longer ignore. Particularly obnoxious to the United States is a rebate for domestically manufactured semiconductors that reduces the value-added tax of 17 percent to as little as 3 percent. That gives domestically manufactured chips a huge price advantage, and encourages foreign chip makers to move jobs and technology to China. On March 18, the United States filed a World Trade Organization claim against China — the first filed by any country since China joined the WTO in 2001.
More challenges are likely. U.S. Trade Representative Robert Zoellick told Congress on March 25 that his office was bulking up on staff dealing with China — including doubling its staff of negotiators. “We are expanding our work in the enforcement area — with a particular focus on China,” he said.