US lawmakers set stage for trade sanctions on China

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WASHINGTON (AFP) — US lawmakers are setting the stage for legislation slapping China with punitive sanctions over currency and other trade issues after another year of record trade deficit with the Asian giant.

With the United States on the brink of recession and as the campaign heats up for November presidential elections, lobbyists in Congress see greater prospects for such legislation to land on President George W. Bush's table for signature.

"Now is the time to move legislation forward," a group of eight newly elected Democratic senators wrote last week to Senate Democratic Majority Leader Harry Reid, complaining about "a host of difficult trade issues with China that require strong action."

The issues range from currency "manipulation" and "unfair" subsidies by China, to trade law and counterfeit enforcement problems, to imported food and product safety, they said.

"The problems facing workers and manufacturers due to unfair trading practices in China and other countries are growing more severe each day," the legislators said in their letter, a copy of which as made available to AFP.

The freshmen lawmakers were elected to the Senate in 2006, when Democrats seized control of Congress on the back of strong criticism of the Bush administration's trade policy with China, and Beijing's human rights record.

With the economy playing an increasingly important role in the presidential campaign, Democrats have new incentive to show how they hold a different view of the threat posed by China than the Republican Bush's administration, according to The Hill, a Congressional daily.

"Lobbyists worry the raised stakes of an election year increases the likelihood that a China trade bill will finally reach the president's desk after several years of falling short," the daily said in a recent report.

US lawmakers, from both sides of the political aisle, have proposed several bills in the House of Representativs and Senate threatening China with sanctions for what they mostly see as an undervalued yuan currency, which they say makes US-bound exports cheaper and fuels the trade deficit.

The deficit hit a whopping 237.5 billion dollars through November 2007, already eclipsing 2006's record at 232.6 billion dollars.

Both Democratic presidential candidates, senators Barack Obama and Hillary Clinton, had last year signed on as co-sponsors of a bill that would allow higher anti-dumping duties on imports from China or any other country found to have a misaligned currency.

Their endorsement reinforces opinion that the Democrats would pursue a more aggressive policy towards China on trade issues if they took control of the White House.

But the Bush administration warned that many of the pending bills were designed not to solve problems in China but simply to reduce US imports from that country.

It calls for "economic engagement" to address most of the trade problems through intensive dialogue as well as using the World Trade Organization (WTO) dispute settlement mechanism and existing US trade remedy laws.

"The blunt instrument of punitive legislation won't work," said Christopher Padilla, the under secretary of commerce for international trade.

"Such measures run the risk of inflating consumer prices at a time of economic uncertainty, bringing about trade retaliation that would stifle our exports, and setting back efforts to promote reform in China -- while doing nothing to reduce the bilateral trade deficit," he said.

Experts warn that any legislation punishing the Chinese for a weak currency could lay the foundation for similar sanctions on the United States by its trading partners, including Europe.

With the US dollar having plunged more than 14 percent against the euro over the past year, the Europeans can use "this same reasoning used by the US against the Chinese" to press for tariffs on US goods, said Wing Thye Woo, an economist with Washington-based Brookings Institution.

"It would set an example for other trading partners to do to the US what it does to China," he warned.

The clamour for a yuan appreciation also looks similar to Washington's demands in the late 1980's and 1990's for the strengthening of the yen to address a US-Japan deficit problem, Wing said.

The Japanese buckled and allowed a sharp appreciation of their currency but it left no impact on the American deficit, he pointed out.