U.S. approaches China with stick in hand

By SHIHOKO GOTO, UPI Senior Business Correspondent  |  June 24, 2004 at 2:15 PM
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WASHINGTON, June 24 (UPI) -- First it was lingerie and textiles. Now it's wooden bedroom furniture made in China that has come under attack. The Bush administration said earlier this week it will slap on as much as a 198 percent tariff on imported furniture in an effort to reduce the U.S. trade deficit with China.

"We're going to be very tough when it comes to enforcing our trade agreements...all parties will have the opportunity to come and present their response" before the final duties are determined, said U.S. Commerce Secretary Donald Evans at a press briefing Thursday following his week-long visit to the country with Labor Secretary Elaine Chao.

Evans and Chao's visit was ostensibly to promote trade and work relations between the two countries, but they were armed more with sticks rather than carrots to ensure closer economic relations between the United States and China.

Granted, Evans was careful to incorporate diplomatic comments to his statements, and he made a point of stressing that "China represents our most dynamic economic relationship in the world...the administration puts great emphasis on working through these issues in a spirit of goodwill."

At the same time, the White House faces a presidential election year, and it is seemingly becoming increasingly important for the administration to present a strong position towards a country which continues to expand its export levels to the United States. Indeed, the U.S. trade deficit with China hit a record $124 billion in 2003, and is expected to head even higher this year.

Cheap Chinese furniture in particular has been flooding U.S. markets in recent years, and industry analysts say that over the past three years since President George W. Bush took office, about 35,000 workers, or roughly 28 percent of the wood furniture industry employees, have lost their jobs at a time when overall, 2.7 million manufacturing jobs have been lost in the United States since 2001. In the meantime, bedroom furniture imports from China have increased by 121 percent between 2000 and 2002, according to analysts.

So with elections looming over the horizon, winning over the support of not only the furniture-making industry but all those sectors that are particularly vulnerable to competition from China and other developing nations, may be seen as a tactical move.

The latest ruling by the U.S. Department of Commerce presented earlier this week will make most of China's largest furniture exporters to pay tariffs of 24 percent or less, while 82 companies will pay a tariff of 11 percent. It is the largest trade dispute to date between the two countries, and many analysts are concerned that a slew of manufacturers in other areas could seek similar protectionist measures in coming months.

Such moves are not new, even though the scale of the latest decision is record-breaking. Indeed, the Commerce Department decided to impose quotas on Chinese-made lingerie last November, and the Bush administration made clear Wednesday that it will continue to keep quotas on textiles and apparel until the end of this year.

"China's furniture industry is already fully market-oriented and competitive...most Chinese furniture manufacturers are private and overseas-invested," said Chinese Commerce Minister Bo Xilai. The minister met with Evans in Beijing Wednesday, and he argued that the latest U.S. decision was "in contradiction with its spirit of free trade."

Rather, the United States "should hold a realistic and fair attitude to exports into the U.S. market," Bo added.

The Chinese commerce minister also said that "if the U.S. adopts unfair restrictions on Chinese textile exports, it will directly affect China's employment and impact China-U.S. trade negatively." To be sure, China isn't taking the blows from the U.S. government without retaliating in kind. Last week, China imposed anti-dumping duties on fiber-optic exports from ten U.S. companies.

But apart from hurting U.S. relations with China, the latest tariff imposition could actually hurt U.S. retailers as well as consumers. Stores such as Crate and Barrel and Pottery Barn are already expressing concern that higher taxes on Chinese-made furniture will make their products more expensive, and thus force them to cut jobs in order to keep prices lower.

For consumers, meanwhile, the tariffs mean that they will have to pay more for the same products that they had been buying to deck out their homes. Many U.S. manufacturers are making their products in China these days to lower their costs, and their goods will be subject to the tariffs.

"We're hopeful that the Department of Commerce has seen through the hypocrisy of this case," said Mike Veitenheimer, vice president of the Bombay Company, a furniture retailer that is a U.S. company but sells many products that are made in China.

While the furniture tariff is already in place, a final ruling by both the Commerce Department and the independent U.S. International Trade Commission is needed in order for the ruling to be effective for the next five years. That ruling is expected by December.

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