Antoaneta Bezlova

Intensifying trade tensions between China and the US are becoming increasingly politically charged, raising fears that the two countries may be heading towards a trade war. The escalation comes at a time when both China and the US are preoccupied with domestic concerns which limit their potential to manoeuvre and compromise.

Absorbed with preparations for the five-yearly Communist Party congress this fall and the 2008 Olympic games, Chinese leaders are averse to adopting any drastic economic measures that could jeopardise social stability. For the US, the administration of President Bush is seen as losing ground in containing rising protectionist sentiments in the Congress with the approach of the next presidential elections.

But the Bush administration has recently hardened its posture towards China on trade, filing formal complaints with the WTO on copyright violations and market restrictions, as well as imposing steep penalty tariffs on some Chinese exports. Beijing has responded by warning the US that the adverse impact of these actions on bilateral ties could be huge. This week, Chinese Vice-Premier Wu Yi, China’s top envoy on trade talks with the US, vowed Beijing would contest the WTO cases .

On Apr. 9, US Trade Representative Susan Schwab requested that the WTO consider

“China’s inadequate protection of copyrights and trademarks” and asked for the WTO to examine the “serious market barriers” to the sale of US movies, music and publications in China. Similarly, the ruling by a US federal court on Mar. 30 suggesting that the commerce department has the legal authority to impose penalty tariffs on glossy paper made in China is groundbreaking because it endorses “countervailing duties” on a nation regarded as non-market economy. If upheld, the decision could open the door to such penalties in a variety of industries, which have been hurt by trade with China.

Protectionist US legislators have been clamouring for tougher measures to reduce the huge US trade deficit with China, which reached $233 billion in 2006, by redressing what are perceived as China’s unfair trade advantages. They allege that China’s massive trade surplus with the US is partly the result of an undervalued Chinese currency, unfair subsidisation of export-oriented companies and weak Intellectual Property Right protection.

Beijing is however planning to pass more laws on copyright protection this year and launch several publicity campaigns. Representatives of US business in China have warned that adopting a tough approach towards Beijing at this particular moment, such as imposing steep tariffs, would generate negative results. “Politically charged legislative approaches to deal with trade relationship have the potential to undermine the international trade regime, derail constructive dialogue, and ultimately weaken the competitive position of US businesses and the overall economy,” the American Chamber of Commerce said in its White Paper released Thursday.