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Analysis
US ready to take off gloves with China

US ready to take off gloves with China

Currency dispute could brim over to trade confrontation

by Darrell Delamaide, member of the OMFIF Board of Contributing Editors

Thu 20 Jan 2011

The US is losing patience with China’s intractability on the currency issue and is moving closer to a full-fledged confrontation over trade.

At issue as President Hu Jintao conducts a state visit in the US is not only what Washington views as currency manipulation to keep down the value of the renminbi but also a host of other protectionist measures that apparently flout international trade rules.

President Hu’s plan to assuage American anxieties by promising new Chinese investment in the US won’t be much of a sop to increasingly restive lawmakers and business leaders. After all, building a plant in the US to assemble wind turbines will hardly make up for the job losses from China’s aggressive moves to protect and nurture a wind turbine industry that now has some 50%
of the global market.

Wind turbine subsidies are the subject of a US complaint in December to the World Trade Organisation, seeking consultations regarding a Chinese fund that appears to contravene WTO rules. Washington is mulling a similar complaint with regard to solar cells, which, like the wind power issue, goes back to a petition filed last September by the United Steelworkers.

The Chinese moves in green energy technology are particularly galling to US policymakers because the industry was supposed to be one of the pillars of a US manufacturing renaissance. As it is, much of the stimulus money spent by the federal government on green energy actually went to creating Chinese jobs.

The New York Times documented in a recent series of articles how China is using local-content requirements, low-interest government loans and preferential contracts to favour domestic producers, which can now use their economies of scale to capture global market share – including in the United States.

Nor is it likely that the US will have much more patience with China’s shell game of shutting down a subsidy fund – as it did with two wind turbine funds named in the USW petition – or temporarily suspending implementation of a protectionist measure when challenged – as it did with an “indigenous innovation” initiative requiring local R&D.

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