China Reminds US: You're Not The Only Trade Game Around

Harsher measures against Beijing could leave US businesses out in cold

Threatened with the loss of its low-tariff trade status with the United States, China is fighting back with its own brand of economic politics.

In recent days, Beijing has issued stiff warnings that American harangues over Chinese human rights abuses, copyright piracy, and nuclear-weapons sales place US access to China's fast-growing markets at risk. The US already opposes China's entry into the World Trade Organization and is contemplating limits on China's most-favored-nation (MFN) trade privileges.

Zhou Shijian, a senior Chinese expert at the International Trade Research Institute, said this week that if the US did not renew its low-tariff trade policy with China, "The base of Sino-US relations will be shaken, which does not accord with the global strategy of the United States.

"It is safe to say China is already an emerging big market, instead of a potential one, for US products and capital," he was quoted as saying in a banner-headline story this week in China's official English-language Business Weekly. "You can bet that European and Japanese business circles will be gleeful about the huge market given up so generously by the United States."

"If the US goes so far as to implement its trade retaliation, China will, according to its foreign trade law, take countermeasures to safeguard its sovereignty and national esteem," an official of the Ministry of Foreign Trade and Economic Cooperation told the New China News Agency late last week. "The US side should bear all the consequences rising therefrom."

The confrontation is a rerun of 1992, also a presidential election year in the US. Then Democratic candidate Bill Clinton threatened to revoke MFN trade status to punish China for alleged human rights violations, only to reverse himself after the election under pressure from American businesses.

Now the battle lines are forming again. The Clinton administration is defending MFN status for China while pressuring the Chinese on other fronts. Angered by human rights abuses, a widening trade gap, and Chinese saber-rattling against Taiwan, a coalition of liberal Democrats and conservative Republicans wants to take a tougher line.

The US is China's fifth-largest trading partner and is the largest foreign investor in China. But China's annual trade surplus with the US stood at $40 billion in 1995 and continues to grow this year, according to Chinese government statistics.

Frustrated at China's failure to stop violations of intellectual property rights, despite an agreement last year, the US recently cited China as the worst pirate on a list of countries that have failed to end illicit reproduction of American videocassettes, compact discs, computer software, and other products. Copyright and trademark counterfeiting is on the rise in China, which now accounts for almost half of the pirated compact discs sold around the world, according to estimates by the International Federation of the Phonographic Industry. Washington is also mulling sanctions against China for allegedly selling nuclear-weapons technology to Pakistan.

US businessmen complain that the political fallout from confrontational politics is starting to hit. "It's clear that the Chinese consider politics to be part of the business equation," says a US banker in Beijing. "They are making clear that business could go to European competitors if the political climate worsens."

US aircraft producers say they stand to be the biggest losers. In April, Chinese Foreign Trade Minister Wu Yi delayed a trade mission to the US that was to include formalizing sale of 20 McDonnell Douglas Corp. aircraft. McDonnell Douglas was forced to assume $100 million in debt to finance continuing construction of the aircraft.

Then, during a visit by Chinese Premier Li Peng to France later last month, Airbus Industrie, the European consortium and the major foreign competitor of American manufacturer Boeing Company, netted orders for 33 aircraft in a deal worth $1.5 billion. The order was widely seen as a snub to Boeing. "I must tell you that I am disappointed in China's most recent order for Airbus airplanes," said Ronald Woodard, Boeing's president, on a recent visit to Beijing.

The Seattle-based aircraft manufacturer says it also could lose out to European competitors on a $2 billion project to build a 100-seat aircraft with China and South Korea. Chinese officials deny that a partner has been chosen and say the selection will not be made until the end of June.

Indeed, Chinese officials insist the Airbus deal was not intended to send a political message but to foster competition."It is not sound policy to rely on just one supplier," says a Chinese trade official. But analysts say China used the deal to show its concern about the presidential politics under way in the US. "China is looking for a more reasonable approach to Sino-US relations," an Asian diplomat says. "They want to show that both sides can play politics."