U.S. upset with China’s influence on cost of materials, key parts

Trade chief says deficit with China needs to be addressed

By Tom Stundza -- Purchasing, 1/30/2008 8:38:00 AM

U.S. Trade Representative Susan Schwab contends that China is manipulating prices on chemicals, the raw materials used to produce steel and parts needed to make airplanes and automobiles to ensure an advantage for Chinese manufacturers over their American competitors. In an interview with The Associated Press in Davos, Switzerland, during the recent World Economic Forum meetings, she said Washington would seek active dialogue where possible but, in cases where talks fail, litigation under World Trade Organization (WTO) rules.

The U.S. charges Beijing, the world's largest producer of many industrial commodities, is driving up costs for companies outside China by limiting its export of such key steel ingredients coke, tin, zinc and rare earths; such semiconductor materials as antimony and silicon; tungsten for mining and construction; and fluorspar, magnesium carbonate and talc. At the same the export restrictions ensure an oversupply of commodities on the Chinese market, keeping costs low for Chinese producers of ceramics, fiber optics and numerous other goods.

“We have a very large and, I would argue, unsustainable trade imbalance with China," Schwab said. “To the extent that the imbalance could be attributed to trade policy—meaning illegal barriers, unfair subsidies, violations of intellectual property rights, counterfeiting, piracy- then that's a real problem."

A trade deficit can be viewed as a sign of economic strength because it shows a country can afford to buy more foreign goods but it also can strain an economy by forcing it to borrow more and more money. For the U.S., financing the imbalance could become increasingly difficult if the dollar continues its decline and the American economy dips into recession as some are forecasting. Democratic critics of the Bush administration's trade policies have charged the imbalance, which has set a record for five straight years, with contributing to millions of lost American manufacturing jobs.