Vice Premier Wu Yi travels to the US this month for round two of China's Strategic Economic Dialogue with the US. Little lingers in memory of round one – after all, little was achieved – apart from Wu's stunning attack on America for its "misunderstanding about the reality in China".
Her harsh remarks may have come as a surprise to some; for this coming round of talks, though, the cards appear to be already on the table.
Washington has reshuffled its deck in recent weeks and the upshot of this has been tariffs on Chinese paper exports and WTO complaints about China's failure to deal with piracy and its refusal to grant fair market access to US music, movies, DVDs and books.
For months now, some kind of trade action against China has appeared inevitable, driven on by an increasingly vocal US Congress and a Beijing leadership that, according to the raw macroeconomic data, is dragging its feet on reform. But the timing of these actions ahead of the talks could prove crucial.
For a start, the Chinese may have been expecting a pat on the back as they arrived in Washington. More than a few recent top level speeches have featured oblique references to the need to reduce the trade surplus – although the 38.6% year-on-year fall in the March surplus to US$6.9 billion is regarded as an anomaly by most economists. Instead, the Chinese delegates will have to negotiate their way through territory that now lies under the shadow of tangible US trade action.
In many ways this is good. Washington made threats about action on IPR towards the end of last year but ended up giving Beijing more time to deal with the problem. US officials argue, probably justifiably, that little has been achieved and now they are coming through on these threats.
What's more, it is being done via the WTO, thereby placing the action in the context of a responsible trade partner seeking to diffuse tensions through proper channels. And no WTO complaint is resolved posthaste – this move on IPR could be seen as Washington putting down its marker, no more.
Although China responded angrily to the WTO complaints, things could be much worse.
Just take the paper tariffs, for example. The 10-20% countervailing duty on imports of glossy paper targets a niche market worth just US$224 million a year, less than 0.1% of US imports from China. But it represents the first time Washington has used anti-subsidy laws against a non-market economy, in theory opening the door to dozens of other industry pressure groups that believe handouts from Beijing are skewing the market.
And, lest we forget, the Schumer-Graham bill calling for a blanket tariff on all US imports from China unless Beijing takes steps to revalue the yuan appears to be back on the agenda.
These are the kinds of unhelpful trade actions that can be avoided if round two of the Strategic Economic Dialogue proves to be positive. No one is getting their hopes up, though.
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