Chinese have taken the flat world by a storm. They have unleashed a never-before-seen power of their cheap labor, which few countries have any answer to. In six years, since it joined the WTO, China has made such huge economic strides that it is virtually impossible to negate its presence, whichever country you may be residing in. America is learning this first hand.

Last year Sino-US trade figures deficit stood at $232 billion, in favor of the Chinese. The trends this year indicate that the figure is likely to be higher still. These figures are causing some concerns in the U.S. Congress and sparking a fire among the protectionist lobby. To make things clear, there is an intense feeling of: ‘if they won’t do it, we will.’ So it looks like Congress has decided to take charge of things if Bush administration is going to be lackadaisical while tackling China on trade-ties.

So as a part of the script, dozens of anti-China legislations await the procedure in the Congress. And this time around both Republicans and Democrats are looking to get in on the act. Free trade loosing its sheen? Worth pondering upon!

But wait there’s another side to the story. The threat of a trade war with China, by far the largest holder of U.S. debt, is serious. So the U.S., instead of making the agenda apparent, is trying to catch China over other matters. Let me recount some of the concerns that the Americans have over trade ties with the ‘Made in China’ brand.

Currency pegging

Yuan is undervalued by at least 40 per cent, according to some of the American analysts. This keeps the exports from China vulgarly cheap compared to the indigenous goods of America and vice versa for exports from America. Chinese political establishment, of course, is able to keep its currency pegged since Yuan is not fully convertible and also because Chinese maintain strict controls over the capital transactions. U.S. Congress answer to this problem is a legislation that’ll empower its Treasury to report in every six months on countries that keep exchange rates ‘fundamentally misaligned.’ The Treasury is then empowered to levy penalizing duties on imports from such territories.

Tainted products

The Chinese have become notorious for their poor quality products. Product after product after product has been recalled or been subjected to a meticulous scrutiny. Pet food, toothpaste, children’s toys etc. have all been subjected to this derogatory treatment.

Dumping

If there’s one thing that Chinese can compete for is sheer number. So after coming within the ambit of international trade, China has flooded several countries with its cheap (no pun intended) products. This, obviously, has been a bone of contention in several countries, more so in the U.S. where traders’ lobby is very strong. This year alone, 27 per cent of the antidumping actions that The Commerce Department filed have been against China.

Piracy and counterfeits

Chinese have the strongest regulations when it comes to corruption but somehow same rules are never applied when it comes to cracking down piracy and counterfeited goods. Related to this is the touchy issue of IPR. Chinese are accused of a blatant violation of the Intellectual Property Rights causing enormous losses to the U.S. every year. Under the terms of China’s WTO accession, it was to bring its IPR laws in accordance with TRIPS, but this has not happened till date. There are developments in enforcing these rights, but these have been unable to put a leash on the blooming counterfeit business in China.

Politics of Trade

The financial muscle and the accompanying political clout the burgeoning forex reserves are bestowing China with, has understandably caused concern in the U.S. While Chinese argue that the above points are raised only as excuses to keep the Sinics under tab, there is more than an ounce of truth to the above allegations. Nevertheless, American political class is making good use of the same to rake in some public support. As a matter of fact, trade with China was made a major campaign in last year’s mid-term elections by the Democrats. This issue is likely to be exploited further in the Presidential race, which is well underway.

So while China and U.S. continue to play their tit for tat, Congress gears up to, what many economists believe, trade-distorting sanctions. The repercussions of such sanctions (which seem almost inevitable) would reverberate throughout the world and definitely have an adverse impact on the world GDP. And the thoughts as to what would happen if China was to start selling off the U.S. treasury bonds, that it is so heavily invested in, is enough to cause more than jitters.

Amidst all the protectionist talks, Paulson has struck a cord of sanity when he says that bilateral talks are a better way to manage tensions than punitive or legislative actions. U.S. problems are deeper than trade with China. Overvalued housing markets, inflexible interest rates, falling dollar, negligible propensity to save, lower economic growth rate; the list seems endless. In such a situation why is China first on target? Are trade ties with Beijing really being used as ‘political football?’ The answer is more evident than you think.