On China visit, US senators tone down tariff talk

They came. They saw. But rather than conquer - they began a "process of careful rumination."

With a deadline looming on one of the US Senate's most drastic tariff proposals ever on China, the authors of the legislation, Charles Schumer (D) of New York and Lindsay Graham (R) of South Carolina, paid a visit to Beijing to talk tough and be aggressive. Until Thursday, when their attitudes seemed to change, they were going head to head with Chinese leaders in a bold bid to change China's currency rate, which they say is undervalued between 15 to 40 percent.

The bill is one of a series of moves in Washington to address the mounting trade deficit with China ahead of President Hu Jintao's visit to the White House April 20. Yet it appears that Senators Schumer and Graham, whose bill would levy a whopping 27.5 percent tariff on Chinese goods, may have blinked after three days of high-level briefings.

"I'm more optimistic that things can be worked out ... than when I came," Schumer said in a press briefing here. "It's been an eye-opening visit," he said, noting that reform in China appears to be both more complex, and further developed, than he realized. "We believe that there is a very real possibility that the Chinese government and the Chinese people see it in their interest to let the currency float ... but the jury is still out."

The two senators agreed that a Chinese offer to change the currency evaluation three percent was far short of their expectations. But the assurances they heard - and the deeper and broader picture of Chinese realities they had painted for them - were causing them to temporize about how hard to push for the upcoming March 31 bill.

That legislation, reflecting frustration on Capitol Hill with an estimated $204 billion trade imbalance with China, is strongly supported by 67 senators. The unlikely pairing of the Northern liberal and Southern conservative typifies sentiment in the Senate on China trade, and the two senators say they have the votes to override what would certainly be a White House veto.

For Chinese officials, the visit by Schumer, Graham, and Sen. Tom Coburn (R) of Oklahoma was itself seen as a small victory, and a chance to educate the American lawmakers on Chinese policies and problems through face-to-face meetings with Wu Yi, the vice premier, and Bo Xilai, the commerce minister.

Chinese economists point out that tens of thousands of small- and medium-sized businesses operate on a 2 percent or less margin, and to massive reevaluate the currency could create economic and social instability. The same argument was made by Mr. Hu to President Bush when the two met last September.

Schumer and Graham said their interlocutors made a convincing case that China is moving gradually toward a floating currency, but top leaders agree that it is in China's long-term interest to adopt an international standard, and that the new 11th five-year plan adopted this month begins to make structural changes to accommodate floating currency.

Graham pointed out that he and Schumer are "not exactly political soulmates," and used their unlikely pairing to illustrate for the Chinese how serious the trade imbalance and currency evaluation question is in the US. "The status quo is not adequate.... If China is doing a better job, fine," said Graham. "But we need real and concrete evidence ... the clock is ticking."

Under the Schumer-Graham proposal, the actual tariff regime would not begin for at least two years, and the senators acknowledged that the 24-month time period was designed to "get something moving" before such strong measures kicked in.

Critics of the drastic tariff measures both in China and in the US say it has arisen too quickly and that its punitive measures are too harsh.

Schumer pointed out that the tariff bill has been under consideration for three years, and that charges it came overnight are incorrect.

"China and America are joined at the hip ... the US is the biggest market, and China is the largest exporter," Schumer said, adding that relations between the two can be positive. "But people are often reluctant to change ... on both sides, so we are creating an incentive to improve."