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A Challenging China Dialogue

Prepared by: Lee Hudson Teslik
Updated: June 21, 2007

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Last month’s economic talks with China sparked a decidedly mixed response in Washington. President Bush hailed the meetings, but some members of Congress reacted with vitriol and the leadership of the House Ways and Means Committee drafted a stinging letter demanding immediate reform on China’s “trade-distorting subsidies” (Forbes). Now, just weeks later, the two countries reconvene for the fourth round of their strategic dialogue, an ongoing series separate from the economic dialogue. The U.S. delegation at the meetings, which opened June 20 (Xinhua) in Washington, is led by a new chief negotiator, Deputy Secretary of State John Negroponte. Initial reports from the meetings suggest U.S. officials are keen to press China on its approach toward Iran (AP). With North Korea, Chinese military buildup, and trade concerns also on the table, the talks could signal the depth of U.S.-China disagreements.

The Korea debate seems likely to dominate headlines (China News Service). On June 17, Pyongyang invited UN nuclear inspectors (FT) to start a process of shutting down the country’s Yongbyon reactor, following the imminent transfer of $25 million of once-frozen funds. Still, the U.S. envoy Christopher Hill registered a cautious note, saying there is a long road ahead to get Six-Party Talks back on track. The United States will likely lean heavily on China, the host of the talks and an essential diplomatic go-between. As this Backgrounder points out, China carries special negotiating clout given its position as North Korea’s biggest trading partner and primary source of food, arms, and fuel.

For all the optimism surrounding North Korea, however, other issues cast a darker shadow. Foremost among these are military and trade concerns. On June 15, the United States announced plans to tighten export controls, targeting high-tech civilian goods that could benefit China’s military (Bloomberg). China recently announced it would expand its military budget by nearly 18 percent in 2007, provoking U.S. concerns about an emerging military rival. Two China experts discuss whether China’s military expansion poses a threat to the United States in a recent online debate.

Congress is also stoking trade tensions with Beijing, pressing for measures to force the Treasury Department and the Federal Reserve to intervene in skewed currency markets—a move implicitly targeting China in what the Financial Times says could unravel into a “full-blown trade dispute with Beijing.” A number of U.S. politicians now say China is manipulating its currency to gain a trade advantage—and in the process exacerbating the U.S. trade deficit. A recent Treasury Department report, however, concludes that while China’s currency is “severely unbalanced,” the country is not actively “manipulating.”

These concerns notwithstanding, a recent CFR Task Force Report says the “overall trajectory” of Sino-American relations is positive. The Economist argues the most prudent course for the United States may be temperance, not fear, and certainly not protectionism. The article notes that increasing trade tensions could heighten a now-minimal military threat. In a recent interview with CFR.org, U.S. Treasury Secretary Henry M. Paulson urges similar restraint, saying China’s currency “doesn’t reflect reality” but adding that the wisest course in the short-term is to press for greater flexibility, not rapid change.

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