Analysis: Risks may blunt tough U.S. talk on China

WASHINGTON Mon Nov 14, 2011 6:48pm EST

U.S. President Barack Obama speaks at his news conference at the conclusion of the APEC Summit in Honolulu, Hawaii November 13, 2011.     REUTERS/Larry Downing

U.S. President Barack Obama speaks at his news conference at the conclusion of the APEC Summit in Honolulu, Hawaii November 13, 2011.

Credit: Reuters/Larry Downing

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WASHINGTON (Reuters) - President Barack Obama's sharp words on China may burnish a tough image as the United States heads into the 2012 election but they carry risks as both Washington and Beijing face a tricky period of political transition.

Obama used the Asia-Pacific summit in Hawaii to pile pressure on China, declaring it must play by global trade rules and act like a "grown up" -- words bound to sting in Beijing, where the millennial sweep of Chinese history is a major point of cultural pride.

Obama's remarks followed a series of strong U.S. pronouncements on China, with Secretary of State Hillary Clinton and other top officials laying out points of contention ranging from Beijing's currency and intellectual property policies to its human rights record.

But political analysts said the Obama administration has few tools to bring China quickly to heel, particularly at a moment when the U.S. economy is fragile, the global economic outlook remains bleak and Beijing is America's number one foreign creditor and third largest export market.

"Obama has to deal with China, and frankly his tools for follow up are constrained," said Jonathan Pollack, a China expert at the Brookings Institution.

"He has got to talk tough and look the part, but whether he is really ready to ratchet up pressure remains to be seen."

While U.S. officials hope to use existing structures such as the World Trade Organization (WTO) to hit back against what they see as unfair trading practices such as Chinese government subsidies to state-owned enterprises, progress can be slow.

Unilateral measures such as punitive sanctions in response to China's currency policy -- which Washington has long said keeps the yuan artificially undervalued against the dollar -- could bring Chinese retaliation and spur fears of a trade war.

That has not stopped leading Republican presidential candidate Mitt Romney from saying that if elected he would designate Beijing a currency manipulator and threaten trade sanctions, echoing U.S. public concern over China's economic and military growth..

"The candidates are going to try to out-tough each other on China, because that plays well," said one business analyst with China connections who did not want to be named.

"But there is no way of addressing these issues bilaterally without causing a lot of collateral damage, so they have to do a lot of soul searching about what comes next."

HOLIER THAN THE POPE

While White House officials say Obama told Chinese President Hu Jintao that American business and American people were "impatient and frustrated" with China's economic policies, China has shown no public sign of backing down.

A senior Chinese diplomat at the Asia Pacific Economic Cooperation (APEC) summit in Hawaii said Beijing would abide by rules made collectively but would not be dictated to when it comes to international trade rules.

Political analysts said China's leaders, preparing to install Vice President Xi Jinping as Hu's successor in the second half of 2012, are under their own domestic political pressure and unlikely to cave in to U.S. demands.

"Right up through the end of 2012 the Chinese leaders are going to have to look holier than the Pope or more communist than Mao when it comes to their response to pressure on China," said Douglas Paal, an expert on Asia at the Carnegie Endowment for International Peace and a senior Asia advisor to the Ronald Reagan and George H.W. Bush administrations.

"You will probably see less cooperation on currency revaluation and on other things we want, and I don't think that pushing them hard in public will make it any better."

Obama's itinerary this week, which takes him to Australia and then to the East Asia Summit in Bali, will give him more opportunities to make common cause with other Asia-Pacific nations unnerved by China's rising profile.

Obama is likely to stress the importance of stronger regional trade and security ties, but some analysts said his visit was aimed at making a longer-term point about U.S. policy rather than scoring individual points against China.

"We're about to enter a much more vigorous period of diplomatic competition between the United States and China," said Victor Cha, an Asia analyst at the Center for Strategic and International Studies.

"China is going to spread its wings anyway, but the United States is signaling that at this moment of greater fiscal austerity the United States is not going to leave a power vacuum for China to fill."

(Editing by Todd Eastham)

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