BEIJING -- Commerce Secretary Carlos Gutierrez said Tuesday that he will push China to continue opening its markets and at the same time ask authorities to crack down on rampant counterfeiting of American goods, especially movies and music. Such moves "could help close the trade gap between our countries," he told Chinese and U.S. officials at a high-level discussion on piracy. Gutierrez was in Beijing to pressure local officials on measures that might help reduce the massive trade deficit the U.S. has with China. In October, China's trade surplus with the U.S. was roughly $23 billion. JPMorgan cautioned in a report earlier this week that the surplus is likely to spiral even higher, helped along by demand for Chinese-made goods leading up to Christmas. "The huge and growing surplus is likely to intensify trade frictions and protectionist initiatives against China's exports, especially in the U.S. and the
European Union ," JPMorgan said. Gutierrez said that China has exacerbated the frustration over the trade deficit by allowing widespread theft of intellectual property to persist. "Those who espouse protectionism as a legitimate economic policy have a loud voice," he said. Last year, exasperated U.S. officials threatened to take China before the World Trade Organization unless it improves enforcement of antipiracy laws. Asked to comment on the likelihood of such an event, Gutierrez struck a diplomatic note before an audience of reporters, saying the "preference is to resolve these issues through dialogue."
However, the Democratic takeover of both houses of Congress could further increase pressure on the Bush administration to go head to head with China on issues related to the lopsided trade deficit. The incoming freshman class includes a number of Democrats from states that have seen significant job losses in manufacturing. They might be inclined to deal more harshly with China than their free trade-minded Republican predecessors. Leading up to the election, politicians on both sides of the aisle were already clamoring for China to revalue its yuan upward, which would make Chinese goods more expensive and in theory help reduce its trade surplus with the U.S. Earlier this fall, Sen. Charles Schumer, a New York Democrat, and Republican Sen. Lindsey Graham of South Carolina threatened to bring to a vote legislation that would impose a hefty tariff on Chinese exports to the U.S. unless Beijing revalued its currency. Gutierrez sought to distance himself from protectionist sentiments during his comments. "We believe the way to narrow the trade deficit is by increasing our exports, not by limiting China's exports to the U.S.," he said. In the meantime, U.S. companies continue to grapple with the piracy problem that robs them of considerable revenue in China. Illegally copied DVDs are one of the most common signs of China's counterfeit culture.
Hoping to find Chinese consumers willing to pay for legitimate videos, this Monday News Corp.'s ( NWS) Twentieth Century Fox announced a deal with a local distributor to start selling its DVDs in China. However, DVDs that cost as little as 75 cents are widely available in China's major cities. Indeed, at the subway stop near where the Gutierrez press conference was held, a hawker could be found in his usual location selling English-language DVD titles such as Miami Vice, Slither and The Devil Wears Prada. Despite such evidence of lackluster enforcement, Gutierrez said the Chinese deserved credit for cooperating more closely with U.S. law enforcement on piracy cases. He noted that Chinese courts have recently upheld trademarks or patents in cases for companies including Pfizer ( PFE), General Motors ( GM), Starbucks ( SBUX) and Kodak ( EK). Separately, the commerce secretary said his department is now reviewing regulations that govern the sale of high-tech goods to China. It plans to issue revised rules in a couple of months. "We believe the new regulations will be more focused, more specific and so provide more predictability" for U.S. technology companies seeking to make sales to China, he said.