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Home Articles & Speeches ANALYSIS: Bra brawl unlikely to burst into Sino-US trade war - Reuters News Service
ANALYSIS: Bra brawl unlikely to burst into Sino-US trade war - Reuters News Service
Alan Wheatley
Asian Economics Correspondent
Reuters News Service

SINGAPORE — The imposition of U.S. quotas on Chinese bras and other garments will probably be the first of a raft of pre-election trade skirmishes, but mutual strategic interests make a full-blown trade war unlikely.

Trade spats can always get out of hand, and Congressional anger will presumably grow in line with low-cost China's ballooning trade surplus with the United States. Beijing, too, cannot be expected to take U.S. sanctions lying down.

But analysts said on Wednesday the sheer scale of two-way economic ties, plus Beijing's importance to Washington on the North Korean nuclear crisis and other geopolitical issues, meant both capitals had a stake in keeping a lid on the textiles row -- just as they seem to be doing over the value of China's currency.

"What I imagine is we will see both parties backing away from this," said Lois Dougan Tretiak, China director of the Economist Corporate Network in Beijing.

China, with an increasingly sure grasp of U.S. politics, recognised that the United States was already gripped by election fever and so was seeking ways to minimise trade friction, short of acceding to demands that it revalue the yuan, Tretiak said.

These steps included promoting the outflow of yuan to reduce upward pressure on the currency and conducting high-profile purchasing trips to the United States.

"What China probably recognises is that it's important to keep the target narrow -- to not have China itself become a focal point in the debate between the Democrats and the Republicans in 2004," Tretiak added. "So it would be very helpful if they don't make a big to-do about things of this sort."

DEEP REGRET

The Commerce Ministry in Beijing expressed deep regret about the Bush administration's decision to grant so-called safeguard relief on Chinese knit fabric, dressing gowns and bras. It reserved the right to protect its interests through the World Trade Organisation, which it joined in late 2001.

But in fact, China's WTO accession pact explicitly granted importing states the right to impose safeguards until the end of 2008 because of forecasts that China would more than double its share of the global apparel market to nearly 50 percent.

Sensitive to foreign concerns, China has already taken steps such as reducing export tax rebates to slow export momentum.

"The Chinese certainly don't want to get involved in any big fight," said Mark Michelson, vice-chairman of APCO Asia, a public affairs and strategic communications firm. "I'd be really surprised if there was an intent to start a fight here."

From the perspective of Washington, President George W. Bush must be alert to political concerns in the run-up to elections in November 2004. Not only will Bush's re-election bid be determined in a clutch of manufacturing states, but key seats are up for grabs in the textile heartlands such as South Carolina.

"So the administration has to be responsive to some degree, but my guess is that this is to throw a bit of a bone and hope that it works," Hong Kong-based Michelson said.

But it was not in Washington's interest to pick a fight with China when it was seeking its cooperation on everything from North Korea to the war on terror. "China is just too important at this point in terms of security issues," Michelson said.

HUE AND CRY

That is not to say there are no risks for financial markets, which drove the dollar to record lows against the euro on the textile news. Protectionism could slow U.S. growth, raise prices and trigger capital flight, especially if China -- a big buyer of U.S. government securities -- took umbrage at Washington's move.

"I doubt it's a serious return to gross protectionism that would be of importance to the market. But we are going to see more of this because, as we head into the election, the important states are ones where these issues as critical," said Pierre Ellis with Decision Economics in New York.

Indeed, the bra battle follows a bruising row over Washington's imposition of tariffs on steel imports, which the WTO has ruled as illegal.

"If we have a recovery that continues without job growth, I think the rhetoric is going to increase," said Robert Lees, Honolulu-based executive adviser for consultants BearingPoint.

"The hue and cry here is that it just ain't fair," said Lees. "These could be very, very difficult times coming up over the next year or two. This does not bode well for U.S.-China relations."

Calling himself a friend of China, Lees said Beijing needed to allay fears -- among blue-collar and high-tech workers alike -- that U.S. business was not being treated fairly. The U.S. deficit with China was $103 billion in 2002 and totaled $89.7 billion in the first nine months of this year alone.

"China needs to do a better job of opening its market. The U.S. put up with Japan having a closed market for ever and ever until their industries were absolutely powerhouse-dominant, and I just don't think it's going to work this time," he added.

Additional reporting by Eric Burroughs in New York.