Representative Rob Portman, Republican from Ohio was sworn in as the new United States trade representative (USTR) the end of April, and on the same day that the Senate approved his nomination. The nomination had been delayed in the Senate because of irritation over what some lawmakers consider the Bush administration's ineffective trade relations with China, and the administration was in a hurry to get the popular Mr. Portman on the job as soon as possible - primarily because of a growing pile of trade problems and potential problems with, you guessed it, China. Portman is well liked by Democrats and Republicans, and he promised the congress that he would get tough with China and do a better job than previous USTR's of enforcing trade laws.

The new USTR has his work cut out for him. The Congress is in near revolt over China's refusal to change its currency exchange rate, which many lawmakers contend allow the Chinese to sell their exports cheaply, undercutting U.S. produced goods, and feeding the trade deficit.

U.S. and EU simultaneously agree to probe Chinese textile exports . In separate actions, at the end of April, the United States department of commerce and the European Union trade commission agreed to investigate the sharp increases in imports of textiles from China. For the U.S. this came as the second such probe, the first having been filed in early April.

There are two key ingredients to the current disputes. First, a 30-year-old system of trade quotas expired in January 2005, and has not been replaced. The old system set limits on the amount of textiles that could be imported from one country and specifically limited China's textile exports to the U.S. and the EU. The bottom line is that China is playing by the new rules - which are no rules on textile exports. The demise of the old rules removed artificial barriers to economies of scale - effectively favoring textile producers in China and India. Things could get ugly because the U.S. and EU are turning to internal protectionist rules to deal with a global free trade issue where by China is simply doing what it joined the World Trade Organization (WTO) to do, and that is compete more effectively in the global economy.

The second ingredient is the Chinese currency exchange rate dispute. As has been well documented by now, U.S. manufacturers, and many lawmakers argue that China's goods, including textiles, get an unfair advantage from its pegging, or fixing its exchange rate to the dollar, and are calling on China to revalue its currency.

Both the U.S. and EU Chinese textile investigations will be on fast tracks, and within the next 60-days there should be preliminary determinations as to whether the markets are being disrupted by imports from China. It there is a determination of disruption, the U.S. commerce department can limit imports while entering into negotiations with China to reach an agreement on textile imports. The EU will follow a similar procedure.

Currency markets speculate about China's golden opportunity . Foreign exchange markets worked themselves into a lather at the end of April, just before China's financial markets closed for the May 2-6 golden week holidays. First there were hints that China might be on the brink of letting its currency rise in value, including a front-page article in the state-owned China Securities Journal, quoting unnamed sources, that conditions "were ripe for changes in the country's decade-old practice of keeping its currency" pegged to the dollar. This was followed by the Chinese currency exchange rate against the dollar very briefly departing from its usual, narrow trading band. A spokesperson for the Central Bank of China quickly denied the published report, and called the exchange rate an error.

This didn't stop the markets from speculating that China will use the five day golden week holidays, from May 2-6 when its financial markets are closed, to revalue its currency. While possible, we don't think that near term revaluation is highly probable.

US Treasury Secretary increases pressure on China to revalue currency . According to a May 7, 2005 report posted on the BBC News web site, "U.S. Treasury Secretary John Snow has pumped up the pressure on China to loosen its tight hold on its currency." According to this report "Chinese and US officials meet on Monday [May 2] in Washington DC, following speculation of an imminent policy shift." China has repeatedly tried to throw cold water on speculation that it is about to revalue its currency, and downplay the stories that have circulated in recent weeks. However, Secretary Snow was not taking "no" for an answer, and said "it's time" for revaluation.

U.S. congress threatens punitive tariffs. To underscore the pressure on China, members of congress currently have a bill pending threatening a 27.5 percent across-the-board tariff on all Chinese imports if a revaluation does not come soon, in the face of a record U.S. trade deficit with China.

Despite threats, decision on revaluation will come when conditions are right for China. The Chinese vice-finance minister is on the record as urging patience because China first needs to get its market mechanisms in order, and repair its banking system. Financial analysts are sure the decision to revalue will come, but within the next three months at the earliest, and more likely when conditions are right for China, and not because of external pressure. The threat by congress to impose punitive tariffs is a sign of the frustration of elected officials at the slowness of China to respond to the pressure constituents are putting on them - but this is probably an empty threat at best. Besides, the reality is that any sanctions on Chinese imports would hurt the U.S. as badly as they would hurt China, a good example being the bicycle industry.

Our advise to subscribers - revaluation of the Chinese currency will be a step in the delayed "expenditure switch" and should be watched carefully for its impact on the next steps in achieving a trade balance. By itself revaluation will change the value of Chinese products and subscribers should start planning now for this eventuality.

"EU commission proposes anti-dumping duties" is the April 29 headline from an article posted on the Bike Europe web site, www.bike-eu.com. The commission has recommended both anti-dumping and anti-circumvention duties on bicycle imports originating in China for another 5 years, and anti-dumping duties on bicycle imports originating in Vietnam. The commission's recommendations have been submitted to the EU council which has a period not to exceed one month to adopt or reject them.

"Canadian Importers Union Re-formed To Fight Anti-Dumping Duties" is the headline from a Bicycle Retailer and Industry News article posted on its web site, www.bicycleretailer.com April 29. The Canadian Association of Specialty Bicycle Importers (CASBI) has been re-formed to fight proposed anti-dumping duties on imported bicycles originating in China and Taiwan. The proposed safeguard sanctions being sought by Canadian bicycle manufacturers would be in addition to and separate from existing anti-dumping duties on low-end Chinese and Taiwanese bicycles and frames. CASBI contends that such safeguard sanctions would be harmful to Canada's specialty bicycle business.

Our advice to subscribers - brands exporting bicycle products from China, Taiwan and Vietnam into the EU and Canada will need to prepare contingency plans for pricing, re-sourcing and or in-country production.