While a trade war between the US and China may not be in the offing, at least not yet, there is no doubt that Washington has decided to blast away at Beijing with both barrels. Prominent among America's arsenal of trade weapons are anti-dumping duties - imposed when imports are sold in the US at prices below what it costs to produce them - and penalty tariffs known as countervailing duties, which take into account subsidies provided by foreign governments to their exporters.
China has been fighting dumping charges from the US for many years. In the case of China, which is considered a non-market economy by the US, the World Trade Organisation allows use of a "surrogate" third country such as India to determine the market value of a product.
China has argued that such an approach is unfair. Moreover, Beijing says that it is already a market economy and so should not be treated in this fashion.
But, until recently, China also benefited from its classification as a non-market economy because the US had never applied countervailing duties against communist countries, arguing that subsidies were impossible to measure in a non-market economy.
Ironically for Beijing, Washington has now decided that China has made enough economic reforms for subsidies to be measured and so, on March 31, announced that it would levy a countervailing duty on coated paper made on the mainland.
"China of 2007 is not a Soviet-bloc economy of the mid-1980s," US Commerce Secretary Carlos Gutierrez said. "Companies in China do respond to subsidies and we can reasonably measure the response."
Unfortunately for China, this does not mean the US now considers it a market economy. While it is enough of a market economy for countervailing duties to be levied against it, for anti-dumping purposes the US will continue to treat China as a non-market economy. China now has the worst of both worlds.
After the coated-paper move, the US earlier this month lodged complaints with the WTO against copyright piracy and accused China of restricting distribution of foreign music, films and books.
Many analysts believe the Bush administration is taking these steps to show a Democrat-dominated US Congress that it is being tough on China so as to pre-empt much more drastic action. However, there is little to suggest that Congress will be satisfied with these steps.
The problem is that while the US is looking for a quick fix, Beijing feels constrained not to do anything that will result in social instability, such as job losses resulting from a drastic increase in the yuan's value. It is the classical paradox of an irresistible force encountering an immovable object.
It does not have to be this way. The economic relationship between the US and China is one that benefits both countries, and both will lose in a trade war.
To avert a trade war, a change in the atmosphere will help. Remember China's "most-favoured-nation" trading status? That term caused misunderstanding and was renamed normal trade relations, and that simple move helped improve the environment.
Today, the US can similarly improve the atmosphere by updating how it calculates trade. At present, it attributes the entire value of a product assembled by mainland workers to China, even though 80 per cent of it may have been made elsewhere, including in the US.
In the age of globalisation, such accounting methods are deeply misleading. Simply changing this to reflect realities will substantially cut China's trade surplus and lower political tensions.
Over time, China will have to focus more on domestic consumption and less on exports. This may already be happening. Last month, China's monthly trade surplus dropped 71 per cent. China is also diversifying away from the US, and that should also reduce pressures in America.
Frank Ching is a Hong Kong-based writer and commentatorSouth China Morning Post
