The China-US trade imbalance spiced up with US Congressmen threatening punitive measures against Chinese goods and the US administration taking piracy complaints to the WTO may give heat, if not light, to the second session of the Sino-American Strategic Economic Dialogue opening today in Washington.

The Chinese delegation, led by Vice-Premier Wu Yi, and the US delegation, led by Treasury Secretary Henry Paulson, are expected to discuss a range of major issues affecting China-US economic relations.

Top Chinese and US leaders attach great importance to this regular dialogue. It involves the highest ranking economic officials and covers the widest range of issues, though both sides remain cautious in expressing expectations.

US President George W. Bush telephoned Chinese President Hu Jintao on May 9 to discuss issues relating to the upcoming meeting.

Vice-Premier Wu Yi made clear China's viewpoints on the dialogue in an article in the May 17 issue of the Wall Street Journal. Wu defines the Sino-American Strategic Economic Dialogue as an important channel through which economic issues of strategic importance are discussed and pressing economic questions resolved.

The Sino-American Strategic Economic Dialogue ought to settle three major questions or at least reach some consensus. When the two sides share more common ground on the issues, disputes will be more easily settled. If disagreements on these major issues grow, resolution will be more difficult.

The first issue involves the two countries' reaching a basic common understanding on the overall evaluation of the Sino-American economic relationship.

A wide gap exists between the two sides' assessment of their current economic ties.

China emphasizes that the bilateral economic relations are on the whole healthy and positive.

The United States, though stressing that the bilateral economic ties facilitate the development of both economies, sees more negative factors than positive ones. In the eyes of some US leaders, the bilateral economic ties are on the whole unhealthy and fraught with risks.

In the assessment of bilateral trade, China emphasizes the encouraging growth in trade volume. Chinese statistics show that volume increased 106 fold between 1979, when bilateral diplomatic ties were normalized, and 2006, an average 18.9 percent annual increase.

The statistics also indicate that China has become the United States' fourth largest export market since China officially became a member of the World Trade Organization in late 2001. The United States' China trade has been increasing 3.7 times faster than its overall average worldwide.

However, what the US side emphasizes is the growing trade imbalance. Although US exports to China in the decade between 1997 and 2006 rose from $12.5 billion to $51.6 billion, US figures show that imports from China in that period outstripped exports roughly 5:1.

As a result, US deficits sustained from its trade with China shot up from around US$50 billion to US$235.4 billion. Last year, the general trade deficit of the US stood at US$765.3 billion, of which one-third stemmed from its China trade. This year's US trade imbalance with China is expected to exceed last year's.

The Chinese side emphasizes that China's trade with the US helps create many more new US jobs and lower prices for US consumers. In the past decade, commodities exported from China have saved an estimated US$600 billion for US consumers.

Statistics show that the jobs of 4 million to 8 million Americans are closely connected to Chinese-US trade. This includes many jobs created by retailers selling Chinese goods.

A report by the Economic Policy Institute, a US government think tank, however, maintains that US imports from China in 1997, for example, led to the disappearance of 736,000 US jobs while US exports to China created merely 138,000 jobs for Americans that year.

Second, the Chinese and US sides have different conceptions of the root causes of the economic disputes.

The Chinese side holds that the US' trade deficits with China should be attributed to global influences and the United States' own China-trade policy.

In her article in the Wall Street Journal, Wu Yi states that the trade deficits are caused by a host of factors connected to economic globalization. They include differences in labor force and investment distribution.

At the same time, the US is restricted by its own trade policy towards China. The US, as the global leader in science and technology, should relax its control of high-tech exports to China. Reversing the United States' dwindling share in China's high-tech market would constitute an effective way to reduce US trade deficits with China.

A Chinese official said on the eve of the strategic economic dialogue that the Chinese side will continue to appeal to Washington to remove restrictions on the export of some US high-tech products to China and that the US acknowledge China's market-economy status.

The US side attributes the trade imbalance to China's artificially keeping down the value of the renminbi and subsidizing exports.

Third, China and the US have different conceptions of the so-called politicization of economic issues.

Leaders of both countries acknowledge that politicizing the economic disputes is extremely dangerous. However they define the issue differently.

President Bush has time and again warned that the colossal trade deficits have become a political issue in the United States and some US lawmakers are pushing for punitive measures against China. The request from the US Congress that China be punished is stonewalled by the White House, although the administration is under increasing pressure from Capitol Hill.

Vice-Premier Wu Yi points out that some Americans are trying to magnify the Sino-American trade imbalances, even trumpeting protectionism. In her view, there should be no place for attempts at politicizing trade issues.

The US interprets "politics" as using political power to resolve economic problems, in this case the US Congress wields its legislative power. The Chinese interpretation of the word is that some elements in the United States are making use of economic problems for political gains.

Problems must first be analyzed before they can be resolved. The right prescription can be found only after the root causes of the problems are clearly defined. The three primary issues actually reflect qualitative analysis of the Sino-American economic relationship.

Only after consensus is reached on these issues can a formula be found acceptable to both sides. With so much at stake, the Sino-American Strategic Economic Dialogue is obligated to promote mutual understanding and bring about consensus on these basic issues.

The author is a researcher with the Institute of International Contemporary Relations

(China Daily 05/22/2007 page11)