As Members are well aware, trade with China has become possibly the “hot button” trade issue of the day. China accounted for nearly one-fourth of the total trade deficit in 2004, which hit an all-time record of $617 billion. U.S. manufacturers and related domestic interests place the blame squarely at the feet of the fixed exchange rate system operated by China, in which the Chinese currency is pegged at 8.28 yuan to the U.S. dollar. Several bills have been introduced in the current 109th Congress that would restrain or impact trade with China. For example, one bill would add “penalty” tariffs to all Chinese imports unless and until the yuan is allowed to float freely on world currency markets. Another bill would make the fixed exchange rate system a countervailable subsidy under U.S. trade laws, which could open nearly all Chinese imports to CVD duties. Yet another bill would expose all non-market economy countries, including China, to CVD petitions. Pressure has built significantly in the U.S. Congress to approve one or more of these bills in the current Congressional session.

At his hearing today, Rep. Portman said that the U.S. needs to take a “tougher approach” to China, and that if confirmed as USTR, he would order “an immediate top to bottom review” of the various trade complaints against that country.

Rep. Portman’s nomination has been generally applauded by legislators, observers and members of the trade community. Nevertheless, Senator Evan Bayh, a Democrat from Indiana and a possible Presidential candidate in 2008, has threatened to put a “hold” on Rep. Portman’s nomination unless the Administration supports a bill to toughen trade laws against China. Recently, a majority of Senate Republicans broke ranks with the Administration, and voiced support for a bill sponsored by Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) that would impose penalty tariffs on Chinese imports.

This was widely viewed as an indictment of the Administration’s chosen approach of “quiet financial diplomacy” with the Chinese government, which has so far borne no discernible fruit.

For U.S. importers, including AFI Members, the “China issue” as a whole presumably cuts two ways. Some Members may wish to curtail imports from China since that country may pose a threat to existing supply sources and price structures. For other Members, China may be an important current or pending supply source in its own right. Members are urged to express their views on this overall issue so that we can determine what position and/or actions, if any, to take on behalf of the Association.