WallStreetJournal

U.S.ChinaTradeTroublesGrow
Domesticpoliticsexacerbatetensionsbetweenworldstwolargesteconomies

ENLARGE
By
IANTALLEYand
June2,20161:18p.m.ET
The
U.S.andChina,
facingmountingpoliticalpressuresathome,a
reseeingeconomictensionsflaretotheirworst
pointinyearsovercurrencyandtradepractices.

Chinahaspushedtheyuantoafiveyearlowagainstthedollar,revivingchargesfromAmericanfirmsofcurrency
manipulationtogainacompetitiveadvantageforChinesegoods
.TheObamaadministrationhasfiredoffaseriesof
tradecomplaintsandlevieddutiesonseveralChineseindustries,from
chickenfeet
to
coldrolledsteel
usedin
appliancesandautoparts.

Thefrictionbetweentheworldstwolargesteconomiescouldworsenasdomesticpoliticscollidewithalreadyweak
growth.

The
U.S.
,seeingheightenedantiChina
rhetoricinthepresidentialelection
,
wantsChinatopressaheadwith
promisedpoliciestoopenupitsmarkets
andallowgreaterinternationalinvestment.

Chinese
leaders,worriedaboutadeepereconomicslowdown,
aretryingtokeepfactorieshummingandprevent
the
kindof
marketunrest
thatgrippedglobalinvestorsoverthepastyear.

U.S.TreasuryandStateDepartmentofficialsflytoBeijingearlynextweekfortwodaysoftalkstotrytocalmsome
ofthetradeirritantsandaddressongoinggeopoliticaltensions,particularlyovertheSouthChinaSea,wheretheir
militariesareoperatingin
sometimesdangerousproximity
.

TheU.S.,whichmovedonWednesdayto
cutoffNorthKoreafromthebankingsystem
,wantsBeijingtohelprein
inits
increasinglybelligerentally
.

U.S.
officialsalsowill
seekreassurancefromChinese
officials
aboutmovingaheadwithpromisedreforms
,suchas
restructuringstateownedenterprisesandreducingindustrialovercapacity,andtrytoadvancetalksonaninvestment
treaty.

Implementingthisreformagendaandresistingtheurgetohangontoanoutdatedgrowthmodeloffersthebest
formulaforChinatoachieveanorderlytransitionandputitseconomyonamoresustainablefooting
,saidNathan
Sheets,U.S.Treasurysundersecretaryforinternationalaffairs.

ChinasViceFinanceMinisterZhuGuangyao,whileacknowledgingatamediabriefingThursdaymajorchallenges
forChinaseconomy,insistedBeijingwouldadheretoitsreformagendaandcommitmentsmadebytheGroupof20
againstcompetitivecurrencydevaluation.

SomeanalyststhinkPresidentXi
Jinping,wantingtoconsolidatepowerintheCommunistPartyaheadofa
leadershiptransitionnextyear,
haspausedreformeffortsandinsteadisrevvinguptheoldplaybookofcreditfueled
growthandinfrastructurespending.Hisaim:Ensureeconomicstabilityandmollifyrivals,
theysay.
AnattemptlastyearbyBeijingtoallowmarketstoplayaroleinsettingitsexchangeratewasmismanaged,adding
toasummertimeofwoeforChinasfinancialmarketsandsparkingglobaljitters.ThereactionsurprisedChinese
officialsandcreatedaheadacheforreformers.

TheChinesegovernmentiskeepingsteelmills,coalplantsandahostofmanufacturingindustriesafloatdespite
dwindlingdemandandatumbleincommoditypricesthatshouldhaveclosedmany.
TheU.S.recentlyslappedChinesecoldrolledsteelimportswithdutiesworth267%,accusingthecountryofselling
productsbelowproductioncost.

Bysupportingexcessproductioncapacity,theChinesegovernmentisengagedineconomicwarfareagainstthe
U.S
.,saidJohnFerriola,chiefexecutiveofNorthCarolinasteelgiantNucorCorp.
Thousandsofhardworking
Americanshavelosttheirjobsbecauseoftheseillegal,unfairtradepractices.
TheChineseeconomyhasdeceleratedafterdecadesofdoubledigitexpansion.
Growthisclockinginat6.7%,its
slowestpacesincetheglobalfinancialcrisisamidrisingdebt,growinglaborunrestandfactoryoutputwellabove
demand.

Chinaacknowledgesithasanexcesscapacityproblem.Butwehavetopreventmassiveunemployment,
Premier
LiKeqiangsaidinMarch.

WhenPresidentBillClintonpersuadedCongresstoin2000tobackChinasentryintotheWorldTrade
Organization,theU.S.countedonexpandedtradeasthecatalystforpoliticalchangeintheCommuniststate.U.S.
firmshopedtocapitalizeontheindustrializationoftheworldsmostpopulousnation.

Adecadeandahalflater,
U.S.firmsandvotersaregrowingincreasinglyfrustrateddespiteChinaspromisestoopen
upthecountry.
CheaperwagesandcostspulledproductionoutoftheU.S.,ChineseimportssurgedandAmerican
manufacturingdeclinedasashareoftheeconomy.TheU.S.tradedeficitwithChinahasswollento$365billion,
nowabout2%ofU.S.economicoutput.

U.S.presidentialcontendersareleveragingangeratChinaoverlostjobsintopotentialvotes.
Manyoftheareashit
hardestbyChinasrisehaveshownsomeofthestrongestsupportforRepublicancandidateDonaldTrump,whohas
threatenedtoslapa45%tariffonChinaasawaytoforceachangeinBeijingstradepolicies.

TheObamaadministrationpointstotheyuansbroaderappreciationsince2005,renewedtalksforabilateral
investmenttreatyandBeijingsvowstoallowmarketstoplayagreaterroleintheeconomyasproofthatits
diplomacyhasyieldedgains.
Buttheyuan'srecentdepreciationandcontinuedobstaclestoU.S.corporateaccess
threatentoerodethoseadvances.


TheresagrowingriskthatifChinaremainsclosed,weregoingtoseemoreandmoreconcernaboutagrowing
investmentimbalance,
saidJeremieWaterman,aU.S.ChamberofCommerceexecutiveoverseeingChina.
ChinasaysitalsofacesaccessproblemsintheU.S.ItsfirmscomplainofacomplicatedwebofU.S.stateand
federallawsandrulesthatarenottransparentenoughandofrestrictionsonChineseinvestmentinareasdeemed
strategic,saidZhangXiaoqiang,executivevicepresidentoftheChinaCenterforInternationalEconomic
Exchanges.

ChineseofficialsalsoareeyeingtheU.S.politicalscenewarily,concernedaboutmakingcommitmentsthenext
administrationcouldbacktrackon.

RecentarticlesinChinascontrolledmediahaveraisedquestionsaboutwhoisincontrolofU.S.economicpolicy.
PresidentObamasabilitytoimplementhasalwaysbeenabitweak,andontheChinesesidenowitmaybethe
same,saidJingHuang,aprofessorofU.S.ChinarelationsattheNationalUniversityofSingapore.
http://www.wsj.com/articles/uschinatradetroublesgrow1464887897