China Passes Canada, Becomes Top U.S. Import Source

China Passes Canada, Becomes Top U.S. Import Source
(Bloomberg – Mark Drajem)

February 14, 2008 – China passed Canada to become the largest source of products shipped into the U.S. last year, capping a six-year period when its exports to the U.S. more than tripled.

Led by items such as flat-panel televisions and computers, household appliances, toys and clothing, imports from China surged to $321.5 billion in 2007, according to a Commerce Department statement today. Chinese trade is accelerating faster than imports from Mexico after the North American Free Trade Agreement took effect in 1994.

China's ascension may lead to a backlash in Congress, where lawmakers accuse China of undervaluing its currency, producing unsafe products and providing its industries with subsidies that allow them to undercut American-made goods.

“This is a surprise, and it will be a bit of a ding-dong for the Congress,'' said Gary Hufbauer, an economist at the Peterson Institute for International Economics in Washington.

Lawmakers are considering a variety of measures to encourage higher duties on Chinese imports to compensate for what they say is an undervalued Chinese currency. The record trade deficit announced today bolsters their efforts, they said. “There is a more compelling case for our legislation than ever, given these new figures,'' said California Republican Representative Duncan Hunter, co-sponsor of a measure to allow companies to petition for duties on Chinese goods.

Yet, the burgeoning Chinese imports have benefited the U.S. by lowering prices and expanding choice, advocates say. “Consumers are getting lower prices for a wider variety of goods,'' said former U.S. Trade Representative Rob Portman.

A stronger Chinese currency would mean higher prices for Chinese goods in U.S. markets and could impede consumer spending – which makes up more than two-thirds of the U.S. economy – just as the U.S. tries to avoid a recession. A more expensive yuan is “not a good thing for the U.S. – it is only going to escalate inflation there,'' said Chen Xingdong, chief China economist at BNP SA in Beijing.

It would be “silly'' for Congress to legislate against China's currency policies given the recent gyrations in financial markets, U.S. Treasury Secretary Henry Paulson told a Senate panel last week.

China has had the largest trade deficit with the U.S. since 2001, due largely to the relative low level of U.S. exports to the Asian trading giant. In 2007 it again hit a record, $256.3 billion.

China also passed Mexico last year to become the second- largest trading partner with the U.S. after Canada. As recently as 2002, Mexico sent more goods to the U.S. than China. Now, Chinese totals are 50% more than Mexican exports to the U.S. The rise of China doesn't mean trade with Canada is falling: imports from Canada increased 3% last year, despite the rise in the Canadian dollar. Imports from China jumped 12% compared with 2006. Chinese exports to the U.S. were rising steadily through the 1990s. They spiked after China entered the World Trade Organization in December 2001 and after global caps on apparel trade expired at the end of 2004.

Even the architect of China's WTO entry is surprised by the speed of its ascent as an economic powerhouse. “No one thought China's re-emergence would be as robust, rapid or consistent as it has been,'' former U.S. Trade Representative Charlene Barshefsky said in an interview. Barshefsky negotiated the U.S. side of China's WTO accession agreement during the Clinton administration. “You will see China continue to rise, despite issues of product safety'' and criticisms by lawmakers, she said.

When Portman took over as the Bush administration's top trade negotiator in April 2005, he announced a “top-to-bottom'' review of China's trade policies and vowed to take a tougher stand against China at the WTO. “China needs to play fairer, and we've had to beef up enforcement,'' he said.

Critics say that the Bush administration hasn't done enough to get China to eliminate subsidies to its exporters, to make sure its products are safe for children and to raise the value of its exports. That's why two Senate panels passed legislation last year aimed at pushing China to raise the value of its currency, which would make its exports more expensive.

Lawmakers say the pressure from industrial states, presidential election dynamics and the growing trade imbalance with China make it likely that Congress will approve legislation this year aimed at China. “This is a major issue in a lot of districts across the country,'' said Ohio Democratic Representative Tim Ryan, a primary co-sponsor of currency legislation. “The more we make the case, this will crank up the pressure on Congress to get something done.''