WASHINGTON—Top trade and finance officials from China and the United States begin two days of high-profile talks here Tuesday that are as much about placating an edgy American public as they are about pushing China toward a more free-market economy.
The talks are deja vu all over again. Two decades ago it was Japan, not China, that was running huge trade deficits with the United States. Public opinion on trade had soured, putting heat on another Republican president, Ronald Reagan, to do something about it. The response was the same: high-level dialogue.
"We had a whole series of them in the 1980s, and every time the trade deficit with Japan would go up, we would institute some whole new high-level dialogue," recalled Clyde Prestowitz, a top Reagan administration trade official who led the get-tough-with-Japan campaign. "We had the Structural Dialogue and the Industrial Policy Dialogue, and one after the other, it was pretty much the same kind of scenario."
The villain today has changed, but the reason underlying this week's Strategic Economic Dialogue is the same: Americans and their elected representatives think they're on the short-end of a trade relationship, and the administration in power needs to look as if it's doing something about it.
"I don't think we're going to see much change come out of these meetings, and I am not sure the objective of the meeting is to achieve much change," said Prestowitz, who led the first U.S. trade mission to contemporary China in 1981. "In the past ... the meetings were to a large extent showpieces. They were intended to palliate dissidents in Congress and the public. This has all the hallmarks of past dialogues."
The closed-door discussions will focus on further opening China's economy, addressing the imbalances in the trade relationship, curbing greenhouse-gas emissions and cooperating on oil exploration and production.
"Nobody said this was going to be easy," Alan Holmer, the Treasury Department's special envoy for the strategic dialogue with China, cautioned in a briefing Friday. "Those are large, difficult issues, and we will continue to pursue them, and you'll have a chance to judge for yourselves whether we are making progress."
Behind the scenes, U.S. officials are expected to press China on alleged manipulation of its exchange rates, inadequate policing of food exports and weak efforts to crack down on counterfeit movies and software. They'll also push to lower the trade barriers that contributed to China's $57 billion merchandise trade surplus with the United States during the first three months of this year.
"China looms very large across the trade horizon," said Alan Blinder, a Princeton University economist and former vice chairman of the U.S. Federal Reserve.
Blinder raised eyebrows earlier this month with a widely circulated essay that suggested that globalization, led by developing countries such as China, threatens to change the nature of trade and may cost more U.S. jobs. In a March study, he estimated that 22 percent to 29 percent of U.S. jobs theoretically could be exported, or offshored, to developing nations such as China and India.
"I think it is moving up the skill chain, definitely. People should look at China now the way they did Japan in the 1960s," the economist said, pointing to Japan's evolution to high-quality manufacturing. "I think China will traverse a path similar to that. You can see that happening: They're now starting to make autos and export them. That's a long way up the value-added chain from simple tourist souvenirs."
The talks also aim to quiet the Democratic-led Congress. Democrats and a growing number of Republicans support trade sanctions against China if the Asian power doesn't move soon to let the currency market set its exchange rate. Last week lawmakers asked the U.S. trade representative to investigate whether China is undervaluing its currency, the yuan, to boost its exports. China's central bank on Friday slightly increased the band within which the yuan can trade.
China's economic rise strengthens its hand in talks with the United States. Its $1.2 trillion in foreign exchange reserves have earned it the moniker the Great Wall of Cash. Through March, China held $420 billion in U.S. Treasury bills and bonds, second only to Japan's $612 billion.
Cash-rich China rattled the U.S. bond market Monday with the announcement that it was taking a 10 percent stake, worth $3 billion, in the Blackstone Group, one of the world's largest private-equity companies.
Some analysts saw the move as a sign that China intends to diversify from Treasury securities. If true, that could spark investors to demand higher interest rates from Treasuries and could increase the amount of interest that the United States must pay on its debt.
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