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Issue #587

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2014 Media Kit
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Obama toughens tone with China as businesses vent

By: | at 07:00 PM | Channel(s): International Trade  

The head of Boeing chose his words carefully as he explained to U.S. President Barack Obama the “dilemma” that Corporate America faces in trying to do business in China.

“We see a world where our interests lay in both competing with China and also engaging with China for access to its market,” Jim McNerney, Boeing Co’s chief executive officer, said on Saturday as he interviewed Obama at the APEC business leaders’ summit.

“How would you assess the U.S.-China relationship when voices now on both the left and the right are calling for a harder line from your administration?”

Obama did not miss a beat, providing a perfectly bland response that there can be “friendly and constructive competition” between the world’s two biggest economies.

But Obama clearly took Corporate America’s concerns into consideration when he met privately with Chinese President Hu Jintao on the sidelines of the Asia-Pacific Economic Cooperation forum on Saturday.

“He made it very clear that the American people and the American business community were growing increasingly impatient and frustrated with the state of change in China’s economic policy and the evolution of the U.S.-China economic relationship,” said Michael Froman, a senior White House adviser on international economic affairs.

A day after his tete-a-tete with Hu, Obama laid on another layer of criticism before a bank of television cameras. He said the relationship was “off kilter” and China was too “grown up” now to flout international rules.

Obama’s aides have said the president reserves his strongest language on China for closed-door meetings, so it was unusual to hear such sharp words made public. Rebuking Beijing publicly can backfire because Chinese officials are loathe to give the impression they are bowing to U.S. pressure.

The tougher U.S. tone is all talk for now. But if American companies conclude the cost of doing business in China outweighs the benefits, it could herald a fracturing in the world’s most important international relationship.

China’s undervalued currency and lax protection of intellectual property top the list of business complaints. Obama regularly raises those issues.

On the other side of the equation are China’s estimated 300 million middle-class consumers, a population almost as large as the entire United States and a potential gold mine for U.S. businesses looking for faster growth.

Judging from comments by executives this week, many still see more opportunities than obstacles in China. In a poll of executives prepared for the APEC summit, more than 40 percent said their single greatest growth opportunity comes from the rise of spending power in Asia, particularly China.

But Obama made it clear he is hearing complaints from executives over difficulties in gaining fair access to China’s markets and protecting intellectual property. It appears that Corporate America’s patience with Beijing is wearing thin.

“U.S. businesses are increasingly pessimistic about their trajectory in China and as a result the Obama administration has more support behind openly criticizing China’s trade policies,” said Nick Consonery, an Asia analyst with political risk consultants Eurasia Group in Washington.

PLAZA ACCORD 2.0

It was businesses that lobbied hard for the United States to get tougher with Japan in 1985, accusing Tokyo of keeping the yen artificially low to assist its exporters and putting American companies at a competitive disadvantage.

The result was the Plaza Accord in which Japan agreed to allow the yen to appreciate more rapidly.

Some in Beijing believe the United States is angling for Plaza Accord 2.0, this time aimed at the Chinese yuan. They blame the 1985 deal for sowing the seeds of Japan’s lost decade of economic growth and fear the United States wants China to suffer a similar fate.

When the U.S. Senate passed legislation designed to press China to let its currency rise more rapidly, Chinese officials warned it could trigger a “trade war” if it became law.

But there is no indication t