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The U.S-China Trade Imbalance

Pick up a toy for your toddler, sneakers for your teen-ager and a briefcase for Dad. Chances are great they will carry a "Made in China" label.

Three out of four toys sold in this country are imported, and 57 percent of those imports come from China. Half the imported shoes and half the suitcases and briefcases bear the "Made in China" designation. reports on President Clinton's trip to China
Total it up and Americans bought $63 billion in goods from China last year. And all the imported toys, clothes and compact disk players mean cheaper prices for Americans. But they also present a political dilemma for President Clinton as he heads to China for a nine-day visit.

The problem is a trade relationship that is very lopsided. For every $5 in goods China sells in America, U.S. companies manage to sell only $1 in the huge Chinese market.

U.S.-China trade has grown from virtually nothing before diplomatic ties were re-established in 1979 to the point last year where China is now America's fourth largest trading partner, with exports and imports totaling $75.4 billion.

But the imbalance means that America's trade deficit with China has ballooned, to $49.7 billion last year, second only to a $56.1 billion deficit with Japan. Given current trends, China should soon surpass Japan.

Presidents going back to Richard Nixon have held up China's huge market as a key reason why engagement rather than isolation was in America's best interests.

The economics of the situation would seem clear. China is the world's most populous country with 1.2 billion people and a fast-growing middle class. By one measurement of total economic output, China is projected to become the largest economy in the world, surpassing even the United States, early in the next century.

Those are the numbers the Clinton administration cites in justifying its own engagement policy with China. But the growing deficit has made the administration talk tougher on trade.

For that reason, China is unlikely to achieve the economic prize it covets most during Clinton's visit - membership in the World Trade Organization. Until a few months ago, chances seemed to be improving that the United States would drop its objections to China joining the 132-nation Geneva-based organization that sets the rules for world trade.

But now the White House line is that China simply hasn't moved far enough in dismantling a maze of trade barriers that keep U.S. products and companies out.

"We are not going to do a bad deal just because of the summit," said Commerce Secretary William Daley.

While praising Chinese efforts to crack down on rampant piracy of American movies, music and computr programs, administration officials said that President Clinton planned to raise a host of complaints in other areas.

Those include continued high tariffs on autos and chemicals, bans on American wheat and citrus and a Chinese distribution system rigged against foreign companies.

"There are still significant and at times very destructive barriers that are complex and confusing," said Gene Sperling, head of the president's National Economic Council.

Complicating economic relations between the two countries is a congressional investigation into whether satellite exports to China compromised national security and whether any of President Clinton's export decisions were influenced by Democratic campaign contributions.

But on the positive side, China has received high marks for the stabilizing role it has played so far in the Asian currency crisis, resisting pressures to devalue its currency.

The pressures to keep exports growing are enormous given that China, under the direction of Premier Zhu Rongji, is in the midst of a painful restructuring of its domestic economy that will result in layoffs of millions of workers at inefficient state-run enterprises.

It is because of that internal reform, many suspect, that China has become less willing to meet U.S. demands for WTO membership.

"China is hesitant to make further commitments at a time when they have so much domestic reform under way," said Greg Mastel, a China expert at the Economic Strategy Institute. "It is a matter that Zhu can only fight so many fights at once."


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