Will the Spy Plane Standoff Hurt U.S.-China Trade?

The tense spy plane standoff between the United States and China may be a diplomatic problem, but an economic question is looming on the horizon: Will the episode hurt the two countries' burgeoning trade ties?

At issue is the status of formal trade relations between the United States and China, and the potentially huge revenues U.S. companies envision when they picture themselves marketing their wares to China's 1.2 billion-plus population.

Last year, the United States sold $16 billion worth of goods and services to China, making it America's fourth-largest trading partner. U.S. exports were at a negligible level when the countries resumed diplomatic relations in 1979.

But the benefits of the relationship go in two directions: U.S. consumers and companies bought $107 billion in imports from China last year, ranking second among all the countries with which China trades.

Congress Considers PNTR — Again

After a contentious debate and a hard push from President Clinton last year, Congress approved the Permanent Normal Trade Relations agreement, or PNTR, which is intended to give the two countries greater access to the other's markets. Opponents of the pact argued that China does not merit such trade status because of human-rights abuses.

In a move that would have similar consequences, China is also attempting to join the Geneva-based World Trade Organization, a process that involves negotiations with U.S. trade representatives.

But with 24 U.S. Navy airmen and women still being held by the Chinese government on Hainan Island after their surveillance aircraft collided with a Chinese fighter jet on Sunday, some members of Congress are implying the United States should get tough with China.

"Failure to resolve this quickly could cause very severe damage in the relationship between China and the United States," Sen. Richard Lugar, R-Ind., said Thursday, speaking of possible long-term trade sanctions.

'The Jury Is Still Out'

But policy analysts and observers of Sino-American relations warn against overstating the dangers of the current situation, and say trade relations should be smoothed over fairly quickly if the diplomatic standoff is resolved.

"If the crew and plane are returned safely and quickly, it would not have a negative impact on the trade situation," says Gerrit Gong, director of the Asia Program at the Center for Strategic and International Studies, or CSIS, in Washington.

And some members of Congress have tried to caution their colleagues about tough talk that could create ill will between the countries.

"I didn't totally agree with the policy on China PNTR, but we made a decision as a country," House Minority leader Richard Gephardt, D-Mo., told a news conference Thursday. "And if we're asking them to live up to their obligations and promises, we ought to live up to ours."

In lieu of a final WTO agreement with China, Congress figures to vote on a one-year extension of China's trade status this summer — which could yet hinge on the swift resolution of the standoff.

"The jury is still out," says Sherman Katz, director of the International Finance and Economic Policy program at CSIS. Although Katz thinks the standoff could be settled in the near future, he notes, "Every day the plane is kept there … it is going to give a lot of folks reason to vote against the necessary extension."

For his part, President Bush said Thursday he wants China's WTO negotiations to proceed, and made the argument that closer economic ties between China and the rest of the world will lead to increased social liberties for Chinese citizens.

"I'm an advocate of China's entering into the WTO," he told the American Society of Newspaper Editors in Washington. "I not only believe it's in our economic interest, I believe it's in our interest to promote U.S. values … When people get a taste of freedom in the marketplace, they tend to demand other freedoms in their society."

Chinese Contracts a Concern

But in addition to NPTR and WTO matters, American companies may be worried that China will seek retribution for the incident by denying them economic opportunities.

In 1996, when the United States and China were at odds over Taiwan, the Chinese government awarded a sizeable jet contract to Airbus Industrie, the European plane-manufacturing group, instead of its American competitor, Boeing.

"There are always those kinds of chances," acknowledges Gong. "But in the end, those deals have to be done on a commercially viable basis over time to make sense."

And Katz points out that other diplomatic flare-ups have not led to punitive action by the Chinese government, adding, "There were not many comparable episodes in the wake of the Chinese Embassy bombing in Belgrade."

John Holden, president of the New York-based National Committee on U.S.-China Relations, worked in China for well over a decade, including a stint in charge of Chinese operations for food and industrial conglomerate Cargill Inc. He sounds a sanguine note about the development of U.S. business in China.

"I've observed the Chinese market open up enormously," says Holden. "China's commitment to joining the WTO is going to provide even more opportunities."