“Robust” Trade Talks with China

BBC News Story

They should be robust considering several major issues involving trade with China that include dumping, piracy and failure to protect intellectual property, and the valuation of the yuan.

First off, dumping is a problem stemming from overproduction by Chinese companies which leads to products flooding the American markets at extremely low, and unfair, prices. In 2004, Chinese exports received 23 investigations of dumping1. This has continued in the last couple of years as well, with allegations of dumping made against Chinese exports of polyester, coated paper, and auto components to name a few. Chinese dumping orders now represent 25 percent of all dumping orders2. Certainly, some things can be done to counteract such measures. In the case of coated paper, countervailing duties have been imposed, but such protectionist measures have been warned against by the Chinese.

China has a high rate of intellectual property infringement. According to Assistant commerce secretary William Lash, The US incurs losses of nearly US$24 billion annually from piracy in China. One large cause of such losses are DVDs. In China, 95% of all DVDs are illegal copies and they sell for under a dollar on average3. Although, the benefits of such intellectual property infringement are not nearly as one-sided as it is with dumping. For China, the lack of protection for intellectual property removes incentive for development of any new technologies due to a lack of potential profit. In Ted C. Fishman’s China, Inc. a story is told where he meets some of the best and brightest minds at one of the most prestigious universities in China. He doesn’t find most of them working to be engineers or research scientists, but instead developing games for cell phones, since they are the hardest to pirate and one of the few areas where developing a new product pays off. That, along with a research infrastructure far behind that of the United States, leaves China at a large disadvantage long-term despite its large source of cheap, migrant labor.

Without a doubt, the growing trade deficit between the US and China will be talked about. One of the largest causes is the valuation of the yuan which is almost completely tied to the value of the dollar, causing it to be undervalued. Currently there is mention of the yuan moving it towards a floating currency, but this has been talked about for many years, with little progress, even since 1999. Some think it may be overvalued by as much as 40%. The Big Mac index, issued by The Economist magazine considers it 56% undervalued. Strong allegations of undervaluation along with the record trade deficit will make it an important topic for these trade talks.

Sources
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