With the dollar at an all time low against the Euro, is China worried that its trading partner will soon become a low cost export competitor to Europe? Probably not (though if the dollar's slide continues, who knows). But it's clear to me at this point that China and US trade relations are currently sitting at a low point for the past year. And even though it's in neither countries best interest, things could potentially go downhill from here.
According to an article posted by the Inter Press Service News Agency late last week, "the administration of President George W. Bush is seen as losing ground in containing rising protectionist sentiments in the Congress with the approach of the next presidential elections … Responding to political pressure from the now Democrat-dominated Congress, the administration has recently hardened its posture towards China on trade, filing formal complaints with the World Trade Organisation (WTO) on copyright violations and market restrictions, as well as imposing steep penalty tariffs on some Chinese exports. Beijing has responded by warning the U.S. that the adverse impact of these actions on bilateral ties could be huge."
Of course I'd argue that since Bush is not a free trader at heart anyway -- at least not as he originally campaigned -- caving into congressional Democratic pressure does not surprise me in the least. But the Chinese are also hardening their position on the issues as well thanks to internal politics. The above-linked story also notes that "with Chinese communist leaders already engrossed in the politics of the upcoming 17th party congress in November, the chance that they may risk their grip on social stability by responding to foreign demands to slow export growth or adjust the currency value is remote."
At least from this vantage point, I'd say that we'll see continued trade rhetoric on both sides in the coming months. But in the end, much of this will amount to posturing, since a long-term souring of trade relations between China and the US stands to hurt both parties equally.