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China’s leaders and commentators think President Barack Obama’s visit in November was an unqualified success. Publicly, the White House sees a qualified success, and privately not even that. It may all depend on what “success” and “failure” mean. The differences have consequences.

American analysts generally are less equivocal than American officials. They mostly see failure. Elizabeth Economy, Director of Asia Studies at the Council on Foreign Relations, called the trip “optically, one of the worst U.S. presidential visits to Beijing in memory.” Helene Cooper wrote in The New York Times from Beijing, “With China’s micro-management of Mr. Obama’s appearances in the country, the trip did more to showcase China’s ability to push back against outside pressure than it did to advance the main issues on Mr. Obama’s agenda, analysts said.” She went on to quote Eswar S. Prasad of Cornell University, “China effectively stage-managed President Obama’s public appearances, got him to make statements endorsing Chinese positions of political importance to them and effectively squelched discussions of contentious issues such as human rights and China’s currency policy. In a masterstroke, they shifted the public discussion from the global risks posed by Chinese currency policy to the dangers of loose monetary policy and protectionist tendencies in the U.S.”

Some Chinese critics share the American conclusions. Ying Chan, Director of the Journalism and Media Studies Center at the University of Hong Kong, headlined in The New York Times, “Obama Loses A Round,” writing, “While the jury is still out on what President Obama’s China visit has achieved for the long term, the president has most decidedly lost the war of symbolism in his first close encounter with China.”

Certainly China seems to have had its way with the President publicly. He wanted a spontaneous, televised meeting with students and bloggers in Shanghai and he got a rehearsed exchange with young members of the Communist Party in a sealed-off auditorium. He wanted to get out and meet people and he got what Helene Cooper reported in The New York Times to be a “ghost town” at the Great Wall, “the bustling tourist attraction” “largely shuttered for the presidential visit.” He was also diplomatically downgraded, accompanied to the Great Wall by the Chinese and American envoys and no senior Chinese official. At his joint press conference with President Hu Jintao, where the two presidents read mutually approving (and presumably mutually approved) prepared statements, the press were not permitted to ask questions. Ying Chan’s assessment was that “the Chinese outmaneuvered the Americans in all public events,” arguing that, “In status-conscious China, symbolism and protocol play a role that is larger than life.”

These conclusions are not good for Sino-U.S. relations. A cardinal principle of diplomacy is never to crush your opponent in a negotiation unless you expect the outcome to be definitive and final. What is perplexing, however, is that China is not gloating over a victory (although at least one senior U.S. official, quoted in The Washington Post anonymously, has referred to “a sense of triumphalism”). To the contrary, China appears to be sincere in its belief that the visit was a success for both parties, presumably understanding the meaning of such aphorisms and not trying to humiliate the President.

For President Obama, at least publicly, the trip to China was an investment with America’s bankers, and he was depositing good will. It was also intended as a foundation for a solid, long-lasting partnership. Chinese commentators believe he got what he said he was seeking. Xinhua reported, “When he left, analysts saw a new direction for developing the China-U.S. relationship, which had major significance, and believed the summit had rendered bilateral relations stronger.” Xinhua quoted Jin Canrong, deputy dean of the International Studies School at Renmin University referring to a “new goal” for the partnership as “positive and significant,” and Fu Menzgi, director of the Institute of American Studies at the China Institute of Contemporary International Relations ascribing “positive and new meanings” to the partnership. President Obama emphasized the need for mutual trust, and President Hu and Chinese commentators agreed. According to Xinhua, “Obama’s China visit turned to be fruitful. The two countries reaffirmed the new definition of their ties – a positive, cooperative and comprehensive relationship in the 21st century – as established by their heads of state, and enriched their relations and cooperation and more strategic connotation.”

Some critics think, however, that the President’s investment is naïve, the foundation less reliable than might be supposed, the rhetoric unsupported by anything of consequence. Writing in The Washington Post, Zhang Zuhua and Jiang Qishen counseled, “The Chinese government does not reciprocate when it is given things for free. It simply takes them and moves on. Foreigners may not know this, but to people in China it is plain as day.” They contend that the decision not to greet the Dalai Lama in Washington before traveling to China, the capitulation on attendees in Shanghai, the acceptance of a press conference with no questions, and the public silence on human rights were all things given away for free. They interpret the Chinese view of a “new direction” as diminishing the stature and role of the United States, taking advantage of a new, young, eager-to-please President.

Measuring Success And Failure

It may be that China and the United States are measuring success and failure differently. Americans may be inclined to consider the visit an optical failure because President Obama’s greatest populist skills, intelligent communication with “ordinary” people, were shut down by Chinese “micro-management.”

Many consider the visit a substantive failure as well, perhaps because President Obama spent only one full day out of three in serious meetings, mostly finalizing agreements reached before he ever got to China. None of the major items on his agenda – Iranian nuclear development and possible sanctions; climate change; global financial reorganization; valuation of the RMB; human rights and especially freedom of speech and communication – seemed to advance very much if at all.

The American presumption of a zero-sum game – American failure equals Chinese success – is not helped by the Chinese public expression of success, however two-way and sincere may be its intention. Most Americans see in the Chinese success a malevolent hand: a stage-managed, micro-managed visit that denied the President the rock star status he enjoys in much of the rest of the world and a denial of the priorities on his agenda. Some, such as David Lampton of Johns Hopkins University’s School of Advanced International Studies, predict “nasty” relations ahead because China’s celebration of the relationship now is little more than a prediction of an ascendant China replacing a declining United States on the world stage, casting the United States “in the role of the supplicant.”

Some critics of the trip (and they are by far in the majority among American commentators) contrast President Obama’s experience with the experience of his predecessors. Whether Nixon, Reagan, Bush, Clinton or Bush, admiring and enthusiastic crowds greeted the American President at Badaling (they all visited the Great Wall, and all in the same place). American-style press conferences were conducted; interactions with “ordinary” people were televised in China. This time, in Ying Chan’s words, there was “a package of faux public events” in which, he comments, “the Obama team” was “outmaneuvered.”

The contrast with predecessors is politically very damaging for Obama, whatever the long-term outcome of the visit for the bilateral relationship. It compounds an accumulating image at home of a president who avoids controversy through submission, whether on the critical details of a health care bill or on the entire manner of going to war, compromising in ways and with adversaries who seek only to exploit agreeability as manifestations of weakness more than courage. There is a growing American impatience with the President’s diplomacy, from the right over Iran, from the left over Afghanistan. And from the China visit there is an echo for some Americans of John F. Kennedy’s first encounter with Nikita Khrushchev, the young and inexperienced President faring poorly as the tough Soviet tested him in Vienna. It seemed China was testing Obama, and he yielded to Chinese preferences every time.

There was a context for the President’s performance in China. He had been excoriated in the American press for appearing deferential to the Emperor of Japan just before arriving in Shanghai. Sensitive Chinese leadership eager to work with the President as a partner would have recognized his precarious position and would have treated him fully as an equal, catering to his wishes as well as their own. Instead, either oblivious to what had happened in Japan or determined to pursue their own course regardless, the public display in China worked to confirm the impression from Japan of a young president perhaps too eager to please his foreign hosts.

That the trip to China likely contributed to this unflattering portrait at home strongly suggests that the next presidential trip to China will not come any time soon, and that President Obama will need to make up lost ground when President Hu Jintao visits the United States in early 2010. President Obama will need to regain the ground American popular opinion will suggest he lost, from being the lone superpower to being a mere equal with a developing country, or worse.

There are at least two superficial challenges here, and then a third that cuts more deeply into the relationship. Superficially, President Obama’s conduct in China was not inconsistent with his personality and governing style more generally. He has been no more forceful with Congress than with China. He conserves effort for the highest priorities and is inclined to let the symbolic be the worry of others. China may have been exploiting this perceived weakness when it may be little more than style, and the exploitation may have, for purposes of the long-term bilateral relationship, little meaning. Or, it could mean a great deal, and more favorably for the United States than critics suppose: having ceded the superficial symbolism, President Obama may have deposited good will for which he expects later, more important dividends. Many Chinese commentators, in claiming the bilateral relationship was stronger after the visit, seemed to endorse this calculation.

The second superficial challenge may be in distinguishing substance from style. Here the President may have a larger problem, for as a candidate he exploited his rock star receptions abroad to win favor and votes at home. As President, he cannot easily reduce to insignificance, therefore, how foreign nations receive him. He made those receptions important and now cannot escape them. He understood instantly that the Nobel Peace Prize, awarded by Norwegians on promise more than performance, could be more of a burden than a boon, and there was nothing he could do about it.

While there is already some evidence of dividends in quiet diplomacy, there are also troubling signs, particularly in the unaddressed agenda of trade, the third challenge that may cut more deeply. Most of what was visible in Copenhagen was more of the same: lower level Chinese officials publicly disagreed with the President of the United States in meetings that were to have been attended only by heads of state, and Chinese security attempted to bar the President from a meeting chaired by Premier Wen Jiabao. Yet, the breakthrough in Copenhagen, right after the visit in Beijing was not trivial: President Hu seemed to give in to the President on critical points that he had refused in Beijing. Perhaps it was easier when out of China than in, holding on to an independent public profile while getting to more substance . Perhaps there was some payback for the President’s conduct, or some fulfillment of private promises. The apparent progress in Copenhagen on climate change, an apparent failure on the Beijing agenda, is not matched, however, as to trade, which seems to be turning into the third rail of the relationship.

The Chinese view and communication of success, then, needs to be understood better. Did China celebrate the success of the visit because it got its way (no populism, no trappings of democracy, no embarrassments, almost no public criticism in China), or because the relationship for the future is stronger and better? If the latter, was the achievement not possible without wounding the President at home, or were wounds self-inflicted, consistent with the President’s personality and aversion to conflict and confrontation? Or, could China not have been more sensitive to the political risks for their new friend, the Pacific President (a potentially discomfiting double entendre), and permitted him to have more of what he asked symbolically?

There are at least two competing interpretations of the current situation. One refers to a new Chinese “swagger,” a confidence that China and the United States are moving in opposite directions and that the Chinese formula – a capitalist, authoritarian state – is more likely to succeed in the twenty-first century than capitalism and freedom.

China projected many signs of this view during the last year of the decade in addition to the President’s November visit. On the authoritarian side, it has openly restricted internet access and use. It has jailed protestors on transparent pretexts. It summarily executed a British citizen for drug trafficking despite international pleas to reconsider. And on the capitalist side, it has begun lending to American enterprises as diverse as Southwest Airlines and Wal-Mart in a global promotion of trade and investment. It has taken its WTO membership very seriously.

A second interpretation, that China’s actions are not merely expressions of confidence, even arrogance, lies in a cultural difference contributing to a growing mutual incomprehension. China never fails, when the United States appeals for its leadership on issues in its neighborhood – whether North Korea’s nuclear capabilities or Pakistan’s harboring of Al Qaeda – to remind the United States that it is a developing country. While demanding treatment as better than an equal (reveling in suggestions of a G-2 while demurring that it would not want such a thing) , it asks for substantial financial aid on global warming and technology transfer on energy efficiency. China wants to be revered and admired for its astonishing achievement pulling hundreds of millions out of poverty, but it also wants sympathy and help. It is happy to leave the most difficult global problems to American leadership, but it wants deference whenever it chooses to take a position. It wants to develop in its own way, on its own time, although it is also in a hurry. Chinese leadership worries every day that a retardation of economic growth could inspire dangerous protest, the kind of fear no American president experiences.

President Obama needs to address both theories in both substance and in symbols. As he tucked into his steak dinner in the Great Hall of the People with knife and fork, so President Hu perhaps should expect to dine with chopsticks in Washington, D.C., each side catering to the other’s cultural preferences and expectations. Perhaps only with such paradox will Chinese leaders understand the domestic damage the visit to China may have done to the President whom they profess to like and admire, and Americans will need to learn the cultural side of why the Chinese do not perceive American failure in the visit. It is not unlike the contrasting perceptions of the Beijing Olympics, whose disciplined coordination frightened many westerners while seen in a proud China as the success of an ascendant nation.

The Xinhua News Agency carefully selected only favorable comments from a handful of Americans who insisted the trip went well. Sometimes the spinning was transparent, as in a subtitle, “China Pulls U.S. Out Of Recession,” leading a quotation from President Obama that read, “China’s partnership has proved critical in our efforts to pull ourselves out of the worst recession in generations.” President Obama obviously did not credit China with pulling the U.S. out of recession. The bias in this reporting, however, seems to have reflected the sincere views of at least some Chinese authorities.

One well-placed source has explained that the acute attention to every detail of the Obama visit demonstrated China’s respect for the President. This idea is captured well by Ni Shixiong, a professor at Fudan University and an organizer of the sanitized Shanghai meeting. He said the organizers felt “there was no need to make both sides embarrassed and stop our guests in their tracks,” and that they did not want to upstage the subsequent meetings in Beijing. In Mr. Ni’s words, as quoted by Sharon LaFraniere in The New York Times, “The climax was in Beijing. We could not overshadow what really counted.”

“What really counted” in Beijing were prepared statements with no questions, and tourism with only one tourist. American reports indicate consistently that, however much the Chinese may have perceived they were honoring their guest by protecting him from potential embarrassment, they were not honoring his wishes, which had been for a different audience in Shanghai and more direct exposure to the people of China. Arguably, however, Chinese officials believe that, on their turf, they know best, and it is better to honor their own views of protecting their guest, rather than the views of the guest himself. There is more in this idea, unfortunately, than a mere whiff of “father knows best.”

Trade And Electric Cars

If Copenhagen were the first test of the new relationship, electric cars may be the second. In President Hu’s words, “I stressed to President Obama that under the current situation, both China and the United States should oppose and reject protectionism in all forms in an even stronger stand.” On the eve of the meetings, China initiated wide-ranging investigations alleging enormous subsidies (in the tens of billions of dollars) and dumping of U.S. automobiles sold to China, and just after the meetings the United States imposed prohibitive tariffs on oil country tubular goods (“OCTG”) from China. Neither action seems mindful of “the current situation,” nor that either China or the United States is opposing or rejecting protectionism.

The Obama visit to China produced a contradiction at the interstices of climate change, energy efficiency, and international trade. Presidents Obama and Hu announced on November 17 the launch of the “U.S. China Electric Vehicles Initiative,” following a U.S.-China Electric Vehicle Forum in September. According to the U.S. Department of Energy, “The two leaders emphasized their countries’ strong shared interest in accelerating the deployment of electric vehicles in order to reduce oil dependence, cut greenhouse gas emissions and promote economic growth.”

The Electric Vehicles Initiative is to be operationalized within the U.S.-China Clean Energy Research Center, created by a protocol on the same day, along with two other projects, building energy efficiency generally and developing clean coal, including carbon capture and storage. The program is extraordinarily ambitious considering that joint funding may be only $150 million over five years, split evenly between the two countries. Still, as a joint venture it is an important declaration of common good intentions and a commitment of government funds to solve a common environmental problem.

While China and the United States were convening in Beijing in September to discuss electric cars under the auspices of China’s Ministry of Science and Technology and the U.S. Department of Energy, China’s Ministry of Commerce was entertaining a petition requesting an investigation of alleged U.S. Government subsidies to develop electric vehicles. The petition’s complaint about government support for fuel efficient cars began with President Obama’s August 2009 announcement of $2.4 billion “to develop cells for new-fuel cars and parts & components.” The petition argued, “Ultimately, with R&D subsidies, the auto industry boasts advanced production technologies and levels, improve their product varieties and quality, and enhance competitiveness.” Such subsidies, the petition contended, violate Article 3 of Chapter 2 of the PRC Anti-subsidy Regulations.

For ten more pages, the petition focused on American programs promoting the development of fuel efficient and electric cars and buses, concluding “that the US government or the Congress, or governmental organs (especially the Department of Energy) funds R&D of electric vehicles in the form of grants, investment, injection of supporting funds, and all the programs involve fund transfer from the government to the auto industry.” The industry gained, the petition claimed, “a competitive edge” from this support.

MOFCOM initiated a subsidy investigation based on this petition days before President Obama’s arrival in Beijing. Support for fuel efficiency in 2009 had nothing at all to do with the petition’s target, “Saloon cars and Cross-country cars (of a cylinder capacity ≥ 2000cc) exported to the People’s Republic of China which originated and were manufactured in the United States.” Yet, MOFCOM did not exclude from its investigation the allegations aimed at support for R&D in fuel efficiency and electric cars, the very same support the Ministry of Science and Technology was promoting, at the very same time.

Amidst a great deal of chatter about retaliatory trade cases (particularly China’s pique over subsidy cases brought in the United States under President Bush while treating China as a “non-market economy,” beginning in November 2006, and the low-grade commercial tires safeguard enacted by President Obama in September 2009), it is easy to interpret Chinese actions (against American chicken parts, steel, and now automobiles) as merely a way for China to remind the United States of sauce for the goose. There is, however, much more to these actions. Notwithstanding the apparent agreement in Pittsburgh at the G-20 meeting that “rebalancing” requires more American saving and more Chinese spending and consuming, China’s growth remains predominantly export-driven. It still needs Americans, and Europeans and Canadians, to buy its products. As much as exports are helping lift the United States out of recession, the Chinese market still lags behind Canada and Japan. China knows it needs the U.S. market more than Americans need to sell to China. Undertaking these investigations, therefore, must be about more than the allegations themselves.

China, or at least MOFCOM, may now think a way to keep open the American market is to warn that it could close its own. In the automobile petition, it also appears to be a way to remind the United States that its own subsidy allegations against China as a non-market economy are being advanced from a glass house. This trade-off, however, remains unbalanced and legally unsound. The U.S. Department of Commerce, for all its protectionism, would not likely have initiated an investigation into allegations that have little or nothing to do with subject merchandise. Assistance for the future development of electric cars has little or nothing to do with saloon and cross-country vehicles already imported into China. Should China link these alleged subsidies to the subject merchandise in final findings, the WTO almost certainly will reject the link.

There is no sensible way to reconcile MOFCOM’s investigation into electric car subsidies with the joint Electric Vehicles Initiative proclaimed by the two presidents. The U.S.-China Clean Energy Research Center is expected to raise and distribute public and private funds for joint research and development on electric cars, the very thing MOFCOM decided to consider as illegal and subject to trade restrictions and penalties. While President Hu was insisting upon President Obama’s concurrence to resist protectionism, and was celebrating joint research and development to overcome the environmental scourge of carbon emissions from automobiles, President Hu’s Ministry of Commerce was launching a hostile investigation into every American effort to solve that very problem.

It is not as if China were not playing by the rules. The Chinese Anti-Subsidy Regulations are translated almost verbatim from the WTO’s Subsidies and Countervailing Measures Agreement. The countervailing duty laws in the United States, based on this same international agreement, routinely are invoked by U.S. industries to complain about the same kinds of programs identified in the United States by the Chinese petition, and the United States Department of Commerce routinely finds such subsidies in violation of U.S. law and international norms. The Department of Commerce regularly now imposes countervailing duties on Chinese goods (more than a dozen times since 2007) when U.S. industries have complained about Chinese government financial support in a variety of forms. And China, in its investigation of electric vehicles, appears to be pursuing a theory long popular in the United States, that all money is fungible and any government assistance, for any purpose, when within the same company, impacts subject merchandise. Although the U.S. Department of Commerce has experienced judicial setbacks in stretching this theory, MOFCOM has not. Notwithstanding that MOFCOM likely will lose a legal showdown on this theory, if not at home then at the WTO, there is no legal impediment to trying.

Certainly one way to combat the American proclivity to impose countervailing duties on Chinese products is to serve up to American industry, especially prominent industry, high doses of the same medicine. It is also logical to emphasize the overbearing presence of the U.S. government in some sectors, such as automobiles, while combating the American treatment of China as a non-market economy. But such actions hardly reflect President Hu Jintao’s promise to combat protectionism “in all forms” and to promote a stronger, deeper partnership to solve common problems.

Nor is China combating protectionism in all forms when resisting U.S. trade actions. Unlike other countries, China is not appearing before the United States International Trade Commission to challenge injury allegations. It is not appealing adverse agency determinations in U.S. courts. It is not pursuing administrative reviews of countervailing duty orders, when final duties are determined and set for collection. Instead, China is counting on the WTO for trade vindication, a strategic choice almost certain to disappoint.

The only publicly disclosed item on President Obama’s trade agenda in Beijing was the value of the RMB. He apparently made no more progress on this subject than his predecessor, and of course the United States does not comment publicly on “the weak dollar” which, according to Dana Hedgepeth in The Washington Post, “has made it easier for U.S. manufacturers of parts for appliances, automobiles and other equipment to compete globally on price and is helping them win back business lost to overseas competitors, a shift that economists say should help the country’s economic recovery.” That description sounds like a strategy for pulling out of the recession, delivering to the United States exactly the same benefit about which the United States has complained so loud and long with respect to China.

Economists are distinguishing between the weak dollar and the undervalued RMB. Although China may be acting legally, they say China is not acting fairly nor wisely. Countries disadvantaged by China’s currency policy may have no legal complaint, but China’s policy may entitle them to complain about trade on other grounds. Even free traders see protectionism, confronting China’s mercantilism, as justifiable.

On New Year’s Eve, Nobel Prize winner Paul Krugman wrote in The New York Times, “China has become a major financial and trade power. But it doesn’t act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory.” Krugman goes on to indict specifically China’s currency policy: “In the past, China’s accumulation of foreign reserves, many of which were invested in American bonds, was arguably doing us a favor by keeping interest rates low … But right now . . . that trade surplus drains much-needed demand away from a depressed world economy. My back-of-the-envelope calculations suggest that for the next couple of years Chinese mercantilism may end up reducing U.S. employment by around 1.4 million jobs.”

“The Chinese refuse to acknowledge the problem,” Krugman writes. “Recently Wen Jiabao, the prime minister, dismissed foreign complaints: ‘On one hand, you are asking for the yuan to appreciate, and on the other hand, you are taking all kinds of protectionist measures.’ Indeed: other countries are taking (modest) protectionist measures precisely because China refuses to let its currency rise. And,” Krugman concludes most conspicuously, “more such measures are entirely appropriate.”

In making currency valuation the only trade issue on his Beijing agenda, President Obama may have been treating it as a surrogate for other trade concerns. However, he thereby avoided confronting the massive government interventions in the economy that unavoidably contravene the rules of the WTO when products benefiting from these interventions are exported. China is now calling the United States on the very programs essential to economic recovery, and as China is unwilling to discuss the value of the RMB, the United States apparently is unwilling to discuss its massive subsidies to banks, automobiles, and other economic sectors.

That China would threaten American trade, both by refusing to discuss currency valuation and by launching cases against American exports, while entertaining the President and applauding new cooperation, should worry everyone sharing agendas of economic recovery and environmental improvement. That the United States should persist in imposing countervailing duties on Chinese products because they benefit from state support should be equally worrisome. There is an inescapable hypocrisy in countervailing loans from Chinese banks going to Chinese goods exported to the United States while American companies are borrowing from the same Chinese banks and the United States has been taking virtual ownership of the key private financial institutions lending to American enterprises.

Embedded in these actions – an effective refusal to confront honestly the pressures of the recession as they impact trade laws and practices -- is either a cultural misunderstanding, a failure to communicate, an intellectual dishonesty, or some dangerous combination. It catapults trade, the subject apparently left behind in Beijing, to the head of an agenda about recovery and climate change. Unfortunately, either the two Presidents do not yet know it, do not want to know, or are ill-equipped to deal with it.

A Further Meaning

China wants the sympathy to be accorded a developing nation historically deprived and exploited, but it also wants the respect of a major power. It wants the United States to provide aid and technology transfer for climate change, but it also wants joint ventures on the basis of equality. It wants President Obama to believe he is admired and respected while it wants him to behave according to Chinese norms and with full respect for Chinese preferences. President Obama seems to have understood these mixed messages and tried mightily to satisfy them all. In 2009 he placed China at the center of his foreign policy, continuing everything he thought good about the Bush Administration’s approach to China, and expanding upon it. In the process, he opened himself to criticism that he satisfied none of China’s expectations, and diminished himself and the United States in the process.

This Chinese paradox inevitably arouses suspicion. China’s celebration of a successful presidential visit may endorse future partnership, but it may also signal an interpretation of a long-term reversal of fortunes. Again, the automobiles petition may be one of the clearest possible statements of Chinese intent, and some Chinese trade experts believe it is an expression of MOFCOM’s own views, perhaps even the product of MOFCOM’s own drafting. It may enable President Hu to say one thing and mean another, his Ministry of Science and Technology devoted to cooperation and government support for technical and technological development, his Commerce Ministry evening the score with American trade agencies by aggressively seeking remedies for state involvement in the economy.

The automobiles petition characterizes the automotive industry as the most important in the United States, “a pillar industry playing a key role in the stability and development of the U.S. economy.” It then accuses past American presidents as acting consistently “to protect the U.S. automobile industry,” but concludes that they failed: “instead, the policies eventually resulted in the decline of the industry.” The protective subsidies “severely violated the relevant provisions of the WTO and distorted the normal market competition.” The petition barely disguises its view that this decline is emblematic of a greater decline of the United States.

The message about decline and bankruptcy is matched by the contrasting description of China’s industry and, without much subtlety, China. However, the most important element of the contrast, the one that raises the most important questions about world trade, contends that China’s rise is attributable to the shedding of state influence, to “the reform and opening up” of China. The petition wishes the legacy of state support to disappear in the mists of time, and pretends that none effectively remains. It wants its audience to believe that the state-driven economy is now in the United States; China is the paragon of a free market.

The automobile industry is the vehicle for this grander argument and seems, therefore, deliberately chosen at the highest levels of the Chinese government. It was bound to get American attention.

Before describing the rise and fall of the U.S. industry, from its creative days as a free enterprise a century ago to its demise at the hands of the state at the dawn of the new millenium, the petition offers a history of the Chinese industry: “By 2008, three decades have passed since the reform and opening up of the country, which is also three decades of reform and opening up of China’s auto industry. In three decades, China’s vehicle production developed, from producing 149,000 vehicles to 9.5 million vehicles, and from less than 1% of world production to nearly 13%. In 2007, car ownership in China exceeded 43 million, ranking fourth in the world. The automotive industry employed 2.91 million people, and employed more than 30 million in related industries.” This astonishing growth, so the petition claims, resulted from free enterprise: “China’s automobile industry grew in strength in the reform and opening up, rapidly becoming one of the world’s largest automobile manufacturer and consumer, and since joining the WTO six years ago, it has achieved the most prominent and fastest sales growth in history.”

The argument of the petition is that China’s automotive ascent matched exactly the U.S. decline, and that as China liberated economic forces, the United States constrained them. Implicitly, as the last century belonged to America, the new one belongs to China. Of course, none of this story has anything to do with trade laws entitling China to impose tariffs on American goods. Instead, the automobile industry here is a surrogate for contrasting the fortunes of China and the United States, a way of saying that the Chinese formula of authoritarian capitalism is better than the American way.

In the new century, China has been innovating, so the automobile petition claims, while the United States has fumbled (the translation apparently was prepared in the Office of the United States Trade Representative but may have originated elsewhere, and is decidedly less elegant here than in some other passages):

Automobile industry is one of the most important pillar industries in America, with a huge number of employees. Less efficient, poor management, and high cost have long since hovering American automobile and keep it down. Under the impact of the economic crisis, American automobile industry is between the beetle and the block. All three top forms are driven to corner. President Obama once declared in public, ‘I may not, can not, and will not let our automotive industry perish . . . It is a pillar of our economy, it is where millions of dreams dwelt.’ Just like what Obama had said, above measures is only the first step. US government will take further measures in domestic automobile industry, and help them get through the difficult period of reorganization. No to mention the competitive power of American new energy vehicles, just from the fact that the government spent such a huge capital and appointed the three top automobiles of General Moto [sic], Ford and Chrysler for its new energy automobiles procurement, we can see that the US automobile industry and new energy automobile project to walk out of their embarrass [sic].

Such statements are rich in irony. They expose resentment of presumed American advantages, criticism of American performance, and rejection of American efforts to stand in the way of a rising China. They demand immediate action because the United States has taken but a “first step” in trying to overwhelm the developing Chinese industry. And since new-energy vehicles define the American strategy for saving its automobile industry, it is the government support for the new-energy vehicle that must be stopped.

President Obama likely did not know, when he used the term “pillar,” that it is a favorite of Chinese central planning and the frequent target of the U.S. Department of Commerce in its assault on alleged Chinese subsidies. The petition authors likely salivated over the American use of the term, confirming their worst suspicions of an American conspiracy to thwart an ascending China by blocking its exports to the United States while shipping to China subsidized goods.

What Now?

The contradiction between the Electric Vehicles Initiative and MOFCOM’s investigation of alleged subsidies to U.S. automakers translates into a much larger problem of cultural misunderstanding and trade protectionism. It echoes the contrasting views of success and failure in the President’s visit in China. It tests whether China and the United States will be able to cooperate or be forced to compete antagonistically. It requires the United States to reexamine the most fundamental aspects of its trade policies and address its hypocrisies, particularly over subsidies and currency valuation. It requires China to tell an honest history and to deal forthrightly with the engagement of the state in the economy.

The avoidance of a trade agenda during President Obama’s visit suggests that neither country is ready for the conversation that could determine the future of the world. Both may well want the same things for the health and prosperity of their societies – gainful and productive employment, clean air to breathe and safe food and water to eat and drink. Both may know, abstractly, that they must trade freely with each other in order to achieve these simple and precious goals. But so absorbed is each country in saving itself that they cannot even talk effectively about saving each other. Instead, they are wrapped in paradoxes and contradictions, leading Krugman to warn that “the victims of [ ] trade mercantilism have little to lose from a trade confrontation.”

China invited the President, deft with chopsticks, to eat with a knife and fork in China, yet one more detail detaching him from the Chinese people and, consequently, from his popular image at home. President Hu’s visit to the United States will, therefore, be all the more important, for its substance and for its symbols. President Obama will demonstrate either that his personality inevitably produces a portrait of unnecessary compromise when China pushes hard, or that as host he can restore his own aura by setting the terms and tone that win at home without exacerbating the tensions already rising between the world’s most significant powers.

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President Obama, on September 11, announced that the United States would restrict imports of Chinese commercial, low-cost tires.  This action was foreseeable and foreseen (for example this blog foresaw this action in articles titled Attack On China Rolls On New Tires and  Consultations To Settle The Tires Dispute: Too Little Too Late?).  President Obama committed to additional tariffs of 35-30-25 percent stepped down over three years; the United States International Trade Commission had recommended 55-45-35 percent over three years. Many analysts called the ITC’s recommendation prohibitive; the Obama rates, according to United States Trade Representative Ron Kirk, were derived from an economic model designed to reduce but not prohibit Chinese tires in the U.S. market.  The victorious United Steelworkers predicted getting their lost jobs back; most analysts predicted that exports from other countries, not domestic production, would fill in the missing Chinese tires.

Within twenty-four hours, China announced trade remedy investigations into chicken and automobile parts from the United States.  Observers were quick to label the announcement as “retaliation” (Inside U.S. Trade headline: CHINA RESPONDS TO TIRES SAFEGUARD WITH NEW AD INVESTIGATIONS), which China denied.  China announced a WTO appeal of an adverse decision on the sale and distribution of visual works and music download services almost simultaneously, and a WTO challenge to the tires safeguard decision within days.

Dire predictions, and accusations directed at President Obama, followed quickly.  President Obama was accused of breaking the word he gave, and the undertaking of world leaders that he had solicited, at the last meeting of the G-20, to avoid any acts of trade protectionism in the midst of a global recession.  He was accused of inconsiderate timing, making his announcement on 9/11, a day that ironically had brought the world together, and less than two weeks before the next G-20 in Pittsburgh, where he would be the host.  China complained, expressly, that President Obama seemed prepared to trade off 5000 American jobs for 100,000 Chinese, seeking a superior moral ground.  Trade analysts rushed to predict a wave of safeguard actions against Chinese products.  After all, if an apparently weak claim could succeed with the Obama Administration, surely stronger claims could prevail, and the standards for relief based on a safeguard action are much lower than for dumping and countervailing duty petitions.

The safeguard action did not require any Chinese violations of any trade rules, and there were no formal allegations of dumping or subsidies in the tires case.  Had there been any, the law required them to be disregarded in the decision process.  Nonetheless, United Steelworkers President Leo Gerard engaged in vitriolic denunciations of Chinese trade practices before, during, and after the President’s decision.  He quickly seized leadership in new petitions that did contain such allegations.  The Obama Administration said nothing publicly to recognize the difference between the decision on tires and findings of subsidies or dumping, thereby possibly reinforcing an apparent Chinese impression that the proceedings were unfair and ill-timed for global economic recovery.  Gerard’s statements (and similar statements from a Union witness, the Alliance of American Manufacturing, at the Trade Policy Committee hearing), seem intended, in their disregard for the law and in their tone, to damage Chinese-U.S. relations.  As they were, in the tires case, outside the law, the Obama Administration may need to be sensitive to an overtly warm embrace of the unions.

Did President Obama start a trade war?  Is China retaliating?  Will the G-20 countries conclude that the U.S. is not committed to free trade, and will they react by seeking to protect their own domestic markets?  Will this trade trigger reverse the promising signs of global recovery from the worst recession since the 1930s?

There are no simple answers to these disturbing questions, but it is possible to address some of them without hysteria.  There is here much more than may seem apparent, and also a bit less.

The Decision On Tires

All trade disputes begin with domestic politics.  The tires dispute began with Candidate Obama’s promises to give meaning to the special China safeguard and to insist upon Chinese adherence to trade laws and agreements, and the critical support he received from the trade unions in his run for the presidency.  It was sustained by a continuing anti-Chinese sentiment in Congress, where various bills alleging currency manipulation and other unfair trade sins are introduced almost routinely.  And it was advanced by the analytical conclusion of four of the six Commissioners of the International Trade Commission, led by a Chairwoman previously on the staff of the Democratic Chairman of the Senate Finance Committee, who found that an increase in Chinese tire imports had disrupted the U.S. market and injured the U.S. industry.  The Democratic Chairman of the Senate Finance Committee, coincidentally but instrumentally, is essential to the President in his efforts to reform health care, his highest priority.

The President’s rationale is uncomplicated.  China agreed to the special safeguard.  Its requirements were met, at least insofar as the case was presented to the International Trade Commission, the United States Trade Representative, and the Trade Policy Committee.  Therefore, it was right and reasonable to apply the law.

There is perhaps another explanation.  The gathered political forces made a presidential refusal to act in the tires case impossible.  The trade unions and the Democratic Congress would have accused President Obama of representing continuity with the Bush Administration, not the change he had promised.  He would have been seen to condone the offshoring of jobs, which the Chinese interests in the case brazenly emphasized as the core of their defense.  He would have been seen as “soft” on China.  Most important of all, he would have had no subsequent credibility with Congress or a probable majority of Americans on trade.  He would never have been able to advance a free trade agenda.  Indeed, he likely would never have been granted the trade negotiation authority that, at present, he does not have but needs.

The Timing

The law, Section 421 et seq. of the Trade Agreements Act of 1974 , as amended, required presidential action by September 17.  The President could have let the date slip inasmuch as there is nothing in the law to discipline him had he done so.  However, President Obama is particularly respectful of the law, and he would have been under unwelcome political pressure had he not acted when the statute required.

The President probably did not want to act while National People’s Congress Chairman Wu Bangguo was in the United States, which China may have interpreted as insulting.  The Chairman, after all, seems to have raised the issue in meetings with the President, Vice President, and congressional leaders during a visit of more than ten days, exactly during the initial window when the recommendation from the Trade Policy Committee and the Trade Representative had reached the President’s desk.

With the September 17 deadline preceding the G-20 Summit in Pittsburgh (beginning exactly one week later) the President surely wanted as much distance as possible between his announcement and the Summit.  At the Summit he wanted to discuss the world’s financial institutions, the economic crisis, climate change.  He did not want a diversion into a trade war.
Wu Bangguo left for China from Washington on Friday morning, September 11.  The President announced his decision that afternoon, which was already the weekend in China.  It was the end of the U.S. news cycle for the week.  It was as long before the Summit as possible once Wu Bangguo had left, and it met the statutory deadline.  It happened to be 9/11, but otherwise there could not have been politically or diplomatically a better time.

The “Retaliation”

China’s nearly simultaneous announcement of antidumping and countervailing investigations could not have been retaliatory in any normal meaning of that term.  China’s bureaucracy, like the bureaucracy in any major country, inevitably is large and slow.  It could not have arranged to announce antidumping and countervailing investigations on less than twenty-four hours notice.  The investigations had to have been planned long before the President’s decision was known.

The Chinese announcement, not the investigations themselves, may have been intended to appear retaliatory, but it, too, had to have been planned.  It is probable, therefore, that the President had told Chinese officials during consultations (see Consultations To Settle The Tires Dispute: Too Little Too Late?) when he would make his announcement so that they could prepare.  It may even have been agreed that the Chinese would announce the antidumping and countervailing investigations effectively in conjunction with the President’s announcement, so that both sides could posture for their publics but also sweep the dispute away a couple of weeks before the G-20 Summit.

That China has a growing agenda of trade grievances with the United States is not surprising, particularly as a wave of trade remedy petitions has begun to flood agencies in the United States and other countries against Chinese products.  As much as China pledges to encourage more domestic consumerism and to reduce reliance on exports (consistent with American requests in the G-20 framework), such a change will not come about quickly.  China needs foreign markets to remain open to its products, just as do other countries.  China is appropriately aggrieved by the drive to close or limit markets for its goods.

A dispute over chicken has been festering between China and the United States for a long time.  China’s domestic industry in auto parts has been troubled, especially in the recession.  Both have been likely sources of Chinese trade actions against foreign imports.  The timing for these investigations may not have been entirely coincidental, but it would also appear to have been less calculated and calculating than to be called “retaliation.”

Within a week of these “retaliatory” Chinese actions, three more antidumping and countervailing duty petitions were filed in Washington against Chinese products.  No one suggested that these petitions were part of a new trade war, or were retaliatory.  Instead, they were understood to be part of the normal course of trade relations between China and the United States, where China is still a major producer of goods that Americans want to buy and American manufacturers and, more significantly it seems, American trade unions, want to keep out.  Notwithstanding the grand objectives of the G-20 Summit in Pittsburgh, to make China more a consumer society and less export-driven, while making Americans greater savers with a reduced compunction to buy, the life of the two countries goes on, and with it the rhythm of American trade complaints against Chinese products.

The Maturing Of China

Although life goes on, there are unmistakable changes, precipitated in part by the global recession, but also by the maturing of China in the international system.  China made significant sacrifices to join the WTO, including negotiating compromises that created exposure to the special safeguard that produced President Obama’s tires decision.  China has been exposed to the WTO disciplines, and nine Chinese actions have been challenged in cases filed in the WTO against Chinese practices. However, China during the last twelve months alone has launched four cases against others.  China has begun to recognize the WTO not only as a forum where it might be brought to judgment, but also one where it may challenge others.

China’s growing engagement in the WTO is part of its growing engagement more generally, whether in the G-8 or the G-5, the G-20 or the International Monetary Fund.  China is growing into a new role, still a developing country, but one with a voice to be heard.  Rather than characterize China’s use of trade laws as “retaliation,” these actions more properly can be seen as maturation, China’s willingness, ability, even determination to act like other countries participating at comparable levels in the world’s trading system.

China is now neither first nor last in the invocation of trade remedies and dispute settlement.  It is one among few, but it is more inside the norms of international organizations than out.

These developments signal more than mere maturation.  They also signal that China accepts the legitimacy of international institutions, and their disciplines.  China accepts full international citizenship, claiming its rights as well as its responsibilities.  Instead of finding fault or danger or risk when China exercises these rights, it is probably wiser to find relief as China integrates into the global economy and polity.  It was not so very long ago when China was an effective member of neither.

The Next Road For Tires

There is no forum other than the WTO where China can appeal the Section 421 safeguard decision.  Nonetheless, China is likely to be disappointed there.  Were it to win, it would not be a victory that could be finalized soon enough to impact the tires trade (especially as all WTO relief is prospective), nor to head off other safeguard actions much before the expiration of Section 421 at the end of 2012.  China, therefore, should not permit the safeguard actions to create an illusion about the WTO, nor exaggerated expectations.

The tires decision may also have limited effect encouraging other safeguard actions.  It took seven months from the filing of the petition to reach presidential decision, which means that “full” relief (three years) requires beginning a case with at least 43 months left in the statute.  It is no longer possible to bring any safeguard action under this provision of the law and obtain a result that could yield even three years of relief, as only 39 months of legal authority remain.  With every passing day, the potential length of time for relief diminishes because of the law’s mandatory expiration.

It would be more prudent and effective for Chinese interests to continue pressing for reconsideration in the White House, where the statute directs everyone after a year.  Were the first year of relief to produce American jobs, a continuing challenge to the President’s decision likely would be futile, but should the predictions of the economists engaged by the Chinese side prove correct, such that safeguard relief does little or nothing for American jobs, the President might be willing to rethink, just as President Bush was forced to do after two years of steel safeguards.  In the latter, even as the President was driven to give up the relief, there was a significant recovery in the domestic industry.  Without any recovery in the tires industry, the likely scenario, the President would be that much less likely to continue the relief in a form harmful to China.
 

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