Administration Official Outlines Plans For Dealing With Chinese Trade Problems

As Congress continues to move forward with legislation to do something about the US/China trade
deficit, a top Department of Commerce trade official has outlined how the Bush administration plans
to deal with Chinese trade issues.

While administration trade officials up to this point have for the most part dealt in
generalities about “engagement” with China, Undersecretary of Commerce for International Trade
Christopher Padilla, in a speech before the Center for Strategic and International Studies in
Washington, D.C., put some meat on the “engagement” bones.

Noting that the United States and China find themselves at a “critical junction,” Padilla
said powerful groups in both nations are questioning the benefits of China’s integration into world
trade circles and are calling for barriers to be erected. “Economic nationalists in the United
States will play on America’s anxiety about the competitive challenge of China and the global
impact of its actions on everything from the safety of our children’s toys to the air that we
breathe,” Padilla said.

He noted that China has been developing policies that favor “national champion” firms over
foreign competitors and that this trend worries American business leaders. He said that while China
has acted recently to address problems of product safety, “China’s response to date had not
inspired confidence.” He conceded that given China’s economic nationalism, it is not surprising
that many Americans are concerned and that this concern is reflected in the legislation pending in

The House Ways and Means Committee currently is working on comprehensive legislation to deal
with a number of aspects of trade with China.

Padilla said, however, that legislation is not the way to go, warning, “The blunt instrument
of punitive legislation will not work.”

Instead, he said the administration’s approach will be to continue a three-pronged engagement
strategy that combines dialogue with “intelligent use of leverage.” Those steps would include
continuation of “intensive” dialogue with China through the Joint Commission on Commerce and Trade,
use of the World Trade Organization’s dispute mechanism and effective application of current US
trade remedy laws, although he is opposed to legislation supported by US textile manufacturers and
others that would define currency manipulation as an unfair trade practice that should be dealt
with under US anti-dumping and countervailing duty laws.

Padilla said the administration’s three-pronged approach offers a comprehensive strategy to
influence Chinese behavior on everything from specific market access problems to broad
macroeconomic concerns. He added that it “combines dialogue with tough enforcement and can be
calibrated to respond to Chinese actions.

February 5, 2008