Timothy Geithner and Wang Qishan will likely have to dispense with the small talk at their next bilateral economic dialogue. Indeed, while there have been some relatively low-level trade disagreements between the two countries since the Obama administration came to power, it does seem as though the tinder is getting ready to spark into real trade friction in the G2 relationship.
The latest is Beijing’s new “Buy Chinese” rules, which require that economic stimulus money be spent on Chinese goods and services “apart from engineering goods or service [sic] that cannot be obtained under reasonable business conditions inside China.” This trade protectionism is sure to raise the hackles of some in Washington who are inclined to cry foul at every Chinese action. And make no mistake, this is protectionism. But the Obama administration is going to find it difficult to rail against China, given its history with “Buy American” provisions in its own stimulus package.
More tantalizing, perhaps, is this recent report by BusinessWeek that says that the WTO has found against China in a complaint filed by the George W. Bush administration over Chinese restrictions of American DVDs, CDs, books and computer software. The WTO will reportedly inform the two parties on Friday of the ruling. China has also opened an anti-dumping investigation against US steel, which was in response to a similar suit filed by US steelmakers against China in April. So back and forth we go. Of course, it’s hard to know whether all of this is going to result in a gathering storm or a larger-than-usual kerfuffle.
Given what most expect to be a grim jobs situation in both the US and China in 2009 and 2010, neither side is going to want to be perceived as backing down to the other on trade issues. After that, the US elections season will start up again, and no American politician wants to be seen as a friend to China during that period. They say that all relationships take work, and none are easy to maintain. But this one will be put to the test in the next few years.