Tags: Can | Tainted | Toys | Spark | U.S.-China | Trade | Tiff?

Can Tainted Toys Spark U.S.-China Trade Tiff?

Thursday, 28 June 2007 12:00 AM

WASHINGTON -- From tainted pet food to lead-painted toy trains, a string of recalled Chinese-made goods threatens to tarnish the Made in China label in the United States and intensify calls for trade protection.

Americans love a bargain and it will take a lot for them to give up the Chinese-made toys, furniture, clothing, food, cosmetics, appliances and other goods that fill discount store shelves -- and increasingly the upscale chains too.

But there are signs that China trade sentiment is souring: in Congress, on the editorial pages of U.S. newspapers, and even in a new advertisement criticizing retailer Wal-Mart Stores Inc. for its heavy reliance on Chinese imports.

"Quality is one thing, safety is a different matter, and if we continue to hear this drumbeat of safety (problems), that could clearly impact consumers' perception of goods made in China," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

If the next case of tainted goods proves deadly, that may be all it takes to trigger a trade tussle.

Trade relations with China already are fraught, with some on Capitol Hill arguing that China has an unfair advantage because its yuan currency is undervalued, making its exports more affordable here. They want the administration to take tougher action.

The U.S. trade deficit with China hit a record $233 billion in 2006 and has continued to swell this year.

"The Chinese better take heed and crack down hard (on faulty goods) now or they will be faced with anti-Chinese trade legislation soon," said Andrew Busch, global foreign-exchange strategist with BMO Capital Markets in Chicago.

As its exports soar, China has stockpiled more than $1 trillion in U.S. assets, leading some lawmakers and economists to warn that the U.S. economy would be vulnerable if China decided to dump dollars in the event of a trade war.

SOMETHING TO LOSE

Many on Wall Street dismiss such concerns as far-fetched, arguing that China's investments would also lose considerable value if the country purged assets.

Mickey Levy, chief economist with Bank of America, told a congressional hearing that such fears were "misplaced."

But some lawmakers see the massive U.S. trade gap as reason to pressure China on its currency and trade policies, and several senators, including New York Democrat Charles Schumer, have used the string of recalls to bolster their case.

Trade imbalances may not be a hot topic around the dinner table, but lead-painted Thomas the Tank Engine trains probably are, and that could dampen consumer sentiment, slow demand for Chinese imports, and boost support for trade restrictions.

In addition to the Thomas trains, well-publicized problems with tainted pet food that killed dozens of animals, and toothpaste laced with a dangerous chemical have made Chinese quality concerns front-page news.

Merrill Weingrod, head of China Strategies, which advises companies on doing business with China, said testing and regulations had improved in the past 20 years but the country was clearly facing a "public relations nightmare."

"This is going to play against China in the larger political picture," Weingrod said. "It fuels the anti-China lobby. The next time senators want to bring up protectionist trade regulations, they'll get a sympathetic hearing."

Chinese authorities have taken steps to tighten oversight, shutting down 180 domestic food manufacturers during the past six months for making substandard food or using inedible materials for food production, state media said this week.

But on Thursday, the U.S. Food and Drug Administration said it would detain imports of Chinese farm-raised catfish, shrimp and other seafood to make sure they were free from potentially harmful residues.

Earlier this week, U.S. transportation officials told a New Jersey importer to recall some 450,000 Chinese-made truck tires that were missing a safety feature. Four senators sent a letter to President George W. Bush, urging him to investigate how the defective tires were sold here.

"POISONING" TRADE

The mood seems to be darkening outside Washington, too.

A recent editorial in the Atlanta Journal-Constitution newspaper said China was literally "poisoning trade with the United States."

"No country has an unblemished record on food and consumer product safety. But the evidence suggests China's manufacturers are more careless, callous or unethical than other trading partners," the paper said in the June 22 editorial.

Anti-China sentiment is also finding its way into a television advertisement that debuted on Wednesday, sponsored by a union-funded group called WakeUpWalMart.com that has been a vocal opponent of the retailer.

The ad points out that money spent at Wal-Mart enriches China, home to many Wal-Mart suppliers, and then it takes the rhetoric one giant step further.

"China ships weapons to the terrorists in Afghanistan," the ad says. "Weapons the terrorists use to attack our troops. So before you shop at Wal-Mart, think about that. This July 4th, be a patriot."

© reuters 2007. All Rights Reserved.

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WASHINGTON -- From tainted pet food to lead-painted toy trains, a string of recalled Chinese-made goods threatens to tarnish the Made in China label in the United States and intensify calls for trade protection. Americans love a bargain and it will take a lot for them to...
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2007-00-28
Thursday, 28 June 2007 12:00 AM
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