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Tuesday, June 19, 2007

Giving China the red hook


LOS ANGELES — U.S. Democratic Sen. Charles E. Schumer has a tiger by the tail. And since he hails from the mean streets of Brooklyn, you can count on the fact that he's not about to let go soon, no matter how loudly the tiger roars.

This is a bit of a problem for China. For Schumer, who first came to the U.S. Congress at the tender age of 29, knows the internecine intricacies of American politics the way many Chinese carefully study calligraphy. He's very active on the Senate Banking Committee.

I knew Schumer from my days as an editor at New York Newsday. He was then, as now, a hardworking politician who sometimes came across like a Brooklyn bookie, despite the smarts learned at Harvard College and Harvard Law School. In New York they would say he oozes a street trait called "moxie." One of the most famous Brooklyn neighborhoods is Red Hook, once synonymous with on-the-waterfront grit.

This tough tiger-tamer is on China's case for its role in the ballooning U.S. trade deficit and for the under-valuation of China's currency. But this is not the whole tale, which is actually an unfolding tale involving three very different cities.

The first city is Washington, where political leaders tend to reach out aggressively to the world to get things done, regardless of whether the world wants them done (Iraq, for example).

The atmosphere in the second city, Beijing, is quite different. Its age-old psychology is to let history come to China — to receive foreign supplicants and accept their tributes and only then decide how to move.

In Beijing's mind, the most prominent recent American supplicant is U.S. Treasury Secretary Henry Paulson. On several trips there, Paulson has played the role of the vassal from a far province requesting the emperor's beneficence.

The final city in this potentially tragic triad is Brooklyn. Street capos like Schumer don't supplicate. Anyone who defects from his view that China must dramatically increase the value of its currency so as to reduce the size of the trade deficit gets blasted.

Says Schumer: "The true free-trade position is to make sure that China is playing fair in global trade. Those who are apologizing for China's intransigence on currency manipulation and other unfair trade practices are the real protectionists in this debate."

In other words, Schumer believes that those who don't accept his view that China should traumatize its colossally large economy with a rapid currency revaluation, thereby making its exports more expensive, cutting the inflow of its income, raising unemployment and possibly destabilizing the country, are apologists. As in Commie sympathizers. Why get so down and dirty?

Because Schumer is from New York, perhaps his verbal offensiveness can be taken with the proverbial grain of salt. Still, it's a risky and ruthless (perhaps Nixon-esque) way to hash out issues.

Agreed, it doesn't hurt to let China feel the heat of irrational U.S. domestic pressures that surface when large trade deficits — such as (yawn) the one with Japan nearly two decades ago — arise. But Schumer would rather hit Beijing with a red hook to the face, even it means the Chinese lose face.

Playing politics with China probably won't move Beijing any more than the supplications of Paulson, who is no intellectual slouch himself (Dartmouth College, Harvard Business School). Yet, if history proves any guide, Paulson has a better chance of getting China's modern emperors and mandarins to bow in the U.S. direction than Schumer.

That's because of the way he makes his argument. Paulson's approach is that it is in China's own economic interests to get the valuation of its currency more in line with the reality of its market value. By contrast, Schumer says it is in America's interests to do so and those baddies and bullies in Beijing had better follow our direction — or else.

And so the senator would make China an offer it can't refuse: Do what we tell you or we will red-hook you with tariffs, sanctions, whatever. To this point, so far at least, President George W. Bush has sided with the point of view of the Harvard Business School guy over that of the Harvard Law School guy.

But Brooklyn's Schumer isn't done fighting, so Sino-U.S. relations, until recently enjoying the best of times, could suddenly enter the near-worst of times.

UCLA professor Tom Plate is founder of the UCLA Media Center and the Asia Pacific Media Network.

Copyright 2007 Tom Plate


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