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The Sino-US economic dialogue

Updated On: May 25, 2007

It is a scene reminiscent of the 1980s when the US confronted Japan over the latter’s rising economic power seemingly hurting US economic interests.

This time, it is China’s turn in the hot seat.

The second Strategic Economic Dialogue (SED) was not just a simple dialogue but, in the words of U.S. Treasury Secretary Henry Paulson, "pivotal to the future of the global economy." "The SED is a forum to manage that relationship on a long-term strategic basis, for our mutual benefit, and to work towards near- term agreements that build confidence on both sides," said Paulson, also as special envoy of U.S. President George W. Bush. "Our two countries can set a standard and a framework for the rest of the globalized community," he said. "Never before have so many ministers from China gathered in one place in the United States," Paulson said. In fact, half of China’s cabinet was in Washington.

But Secretary Paulson is also under pressure to deliver. In his opening remarks at the two-day "strategic economic dialogue" meeting, Paulson highlighted "persistent trade and financial imbalances", reiterating that Americans were "impatient". At the heart of the impatience was a burgeoning trade deficit that reached US$232 billion in 2006. Impatience was also underlined by American fears of China which has emerged as a global manufacturing power, replacing the United States as the top and primary trading partner for many nations in the world. This has given rise to anti-China sentiments in the US Congress.

There has and always been a solution at hand. China wants to spend more in the US, especially to purchase its hi-tech products which China wants badly. Chinese Vice Premier Wu wanted the US to relax its export controls and "reverse the trend of dwindling market share of American high-tech products in China." The Americans disagree with this assessment although they are keen to sell more health care, computer systems, environmental systems and energy products to augment bilateral hi-tech trade.

For the Americans, it is an issue of revaluing the Chinese currency. Many members of the Congress argue that it is the exchange rate between the Chinese currency and the US dollar which gives the Chinese an unfair advantage. Some US Congressmen have even said the yuan should be revalued by up to 40%. Such proposals are controversial even in the US because an upward surge in the Chinese currency would probably equate to a falling dollar (the US dollar has fallen substantially against the world’s major currencies, especially those in East Asia) may not be conducive for the American economy. Since the Chinese government allowed a limited float of the yuan in 2007, the yuan has already gone up by about 5% against the US dollar. The yuan continues to appreciate gradually in blocks of 0.3% to 0.5%.

While half of the Chinese cabinet is in Washington, half a world away, the US’s political representative in Taiwan is also focusing on economic issues. Stephen Young, the U.S. representative to Taiwan, is pushing for Taiwan to further its economic ties with China, a move that could help Washington ease off Taiwan Straits issues. ``A critical way to improve the U.S.-Taiwan trade partnership is for Taiwan to further open its economic relationship with China,'' said Young. “Closer cross-Strait ties can also contribute more broadly to U.S. and Taiwan interests in the region”. For the moment, the pro-independence Taiwanese government does not seem to be budging on this issue as it continues to limit trade and investment in China, prohibit direct flights to China and restrict investments in advanced technology which many, including Washington, sees as detrimental to the interests of the island. (24 May 07)

Sources:

US, China clash over reforms at high-level economic talks (Channelnewsasia, 23 May 2007)

ChinaU.S. kick off second meeting of Strategic Economic Dialogue (People’s Daily, 23 May 2007)

China's Wu Yi warns against politicizing Sino-US economic ties (Channelnewsasia, 22 May 2007)

Trade deficit dogs US, China strategic talks (Straits Times, 22 May 2007)

China's Wu pushes for trade cooperation (CNN, 22 May 2007)

US and China to hold trade talks (BBC, 22 May 2007)

US looking to ease China trade tensions (AP, 22 May 2007)

Trade Talks With China at a Juncture (NY Times, 22 May 2007)

Currency issues shadow U.S.-China talks (AP, 21 May 2007)

U.S. Urges Taiwan to Expand Economic Relationship With China (Bloomberg, 21 May 2007)