Obama to challenge China on trade as election nears

WASHINGTON, (Reuters) – The Obama administration,  under fire for not taking a harder line on China over its  currency, appears set to move against the Asia export  powerhouse on other fronts as next year’s U.S. elections  approach.

Barack Obama

The United States is likely to launch fresh challenges  against China at the World Trade Organization, probably stoking  tensions between the world’s two biggest economies.

“I expect the United States will be bringing more cases  against China in the coming year,” said James Bacchus, who as a  former WTO appellate judge used to sit in judgment of  international trade disputes.
Already firmly in campaign mode, President Barack Obama  recently boasted of taking a tougher line on trade than his  predecessors. China, its currency and other trade issues have  already become a big issue in the election campaigning.

Republican presidential hopeful Mitt Romney has ratcheted  up his criticism of China, despite his party’s traditionally  pro-free trade stance.

“If you are not willing to stand up to China, you will get  run over by China, and that’s what’s happened for 20 years,”  the former Massachusetts governor said on Tuesday.

He was speaking shortly after the U.S. Senate passed  legislation to crack down on Chinese currency practices that  U.S. lawmakers blame for millions of lost jobs.

Sensitive to how the criticism of China plays with U.S.  voters, Obama has not yet explicitly said he would veto the  bill. In any case, the legislation is unlikely to pass the  House of Representatives where Republican leaders have voiced  concern that it might breach WTO rules and could spark a trade  war which would damage U.S. corporations.

But Obama is likely to want to show voters his mettle on  trade issues and trade experts say he has plenty of options to  pursue which, unlike the Senate currency bill, are likely to  conform with WTO rules.

New government data on Thursday that showed the U.S. trade  deficit with China hit a record $29 billion in August and is  also likely to set a record for the year could add to the  pressure on Obama to act.

Last week, U.S. trade officials notified the WTO of some  200 Chinese government subsidy programs and scolded Beijing for  not taking the action itself as required under WTO rules.

U.S. officials at the WTO’s headquarters in Geneva also  recently took China to task over agricultural policies that  they said unfairly discriminated against foreign suppliers.

One case likely to surface in coming months is a complaint  against Chinese export restrictions on rare earth minerals  used in variety of high tech and clean energy goods, Bacchus  said.

Jeffrey Schott, a senior fellow at the Peterson Institute  for International Economics, said he also believed U.S. Trade  Representative Ron Kirk’s office was laying the groundwork for  a number of new trade cases against China.

“I think USTR is moving aggressively to ensure strong  enforcement of U.S. trade rights and I think that is a high  priority in the White House,” Schott said.

Both Obama and U.S. Treasury Secretary Timothy Geithner  have recently sharpened their criticism of Beijing’s failure to  protect U.S. intellectual property, an area that the United  States has successfully challenged in the past at the WTO and  could be ripe for additional complaint, Bacchus said.

In another warning sign for China, U.S. lawmakers have been  pressing for action against Chinese government subsidies for  its solar industry and other “green” technologies, an area  prominently included in the USTR report to the WTO last week.

The United States may need to tread carefully in that area  since it has its own programs to support renewable power.

       TENSE ATMOSPHERE

Analysts cautioned the highly charged political atmosphere  in Washington — as Republicans and Democrats struggle for  position ahead of presidential and congressional elections in  2012 — could be misread by Beijing.

China faces a leadership succession of its own in 2012-13,  adding to the potential for tensions between the two countries  to worsen.

“We’ve been seeing for some time in (the United States) a  serious flirtation with increased protectionism,” said Doug  Paal, a China expert and vice president for studies at the  Carnegie Endowment for International Peace.

“I have been telling the Chinese that they should take this  seriously, but I’ve been warning them that next year is the one  that they’re really going to have to worry about.”

Eswar Prasad, a senior fellow at the Washington-based  Brookings Institution, said any tit-for-tat measures had the  potential to blow up into something much more serious.

“There is a real and present danger that symbolic measures  initiated by either side spiral into a more serious trade  conflict as both sides strive to flex their muscles for the  benefit of domestic audiences,” Prasad said. “Much acrimony  lies ahead but the big question is whether it will spill over  into open warfare that could be mutually harmful.”

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