Getting tough with China may be too expensive for US

FROM a business point of view, it has been an extraordinary week in US foreign policy. President Clinton held an international 'fireside chat' on CNN in an attempt to bolster his sagging foreign policy ratings. He stated explicitly that US 'economic security' remains a primary focus, angrily denied 'flip-flopping' over Bosnia, and softened his rhetoric somewhat over China's human rights violations.

Meanwhile, the US Treasury engaged in a massive market intervention with 16 other nations to halt the dollar's slide, the result, according to traders, of a lack of confidence in both Mr Clinton's foreign policy skills and the Fed's determination to fight inflation.

Almost simultaneously, a memo from the chief architect of Mr Clinton's Asia policy was leaked to the press. The letter by assistant Secretary of State Winston Lord warns that US-Asia policy, once the cornerstone of Mr Clinton's 'economic security' agenda, is in a complete mess. Mr Lord, who has become the scapegoat for the administration's mishandling of relations with China, paints a picture of initial optimism gone sour.

Since the launch of a 'new Pacific community' at a US- sponsored summit last November, America's relations with Asia have been infected by disputes over arms controls, human rights, labour rights, endangered species and, most recently, Singapore's decision to cane an American teenager convicted of vandalism.

As a result, hoped-for US economic gains are being lost and Asian nations are uniting in their opposition to US bullying. Mr Lord's conclusion as reprinted in the Washington Post: 'It is time to weigh more carefully the costs / benefits of taking unilateral actions' and to treat Asians as equals.

Ironically, as all of this was playing out, the first Vietnamese trade delegation arrived in the US, cap in hand, seeking major investment to repair the damage caused by 'the American war'. The lifting of the trade embargo on Vietnam was seen as one of the bright spots of Mr Clinton's foreign policy, soon to be followed, many hope, by the normalising of relations with Cuba.

But as members of the People's Committee of Ho Chi Minh City soon discovered, it could take years to drum up significant two-way trade because of lingering US doubts over missing American servicemen which continue to pose diplomatic roadblocks. Small wonder that Mr Clinton complained during his televised address that there are no easy solutions in this unpredictable post-Cold War world.

However, even Mr Clinton appeared to acknowledge that the US could have avoided an unnecessary, highly divisive confrontation with China had it separated trade from legitimate social concerns. The fact that it chose to link the two, in what amounts to a sermonising from the US foreign policy pulpit, has placed the administration in a very costly bind.

Even if Mr Clinton finds a face-saving way out of the China Most Favoured Nation dilemma, and there are strong indications that he will, the relationship will suffer. The Chinese have long memories and not a little contempt for US moralising. 'Who is to judge what constitutes a human right? We consider it a basic human right to be able to walk down the street without fear of being shot or robbed,' a senior Chinese official said.

Furthermore, several new studies indicate that even if the US backs its harsh threats of trade sanctions, it is the Americans, not the Chinese, who will be the big losers. This is well understood by the tough-minded Chinese leadership which has had a lot of experience. US sanctions imposed after the Tiananmen Square massacre had little or no effect. Similarly, the Soviet Union fared no better when it cut off aid, credits and technical assistance in the 1960s in an attempt to force the Chinese leadership to adopt a stronger pro-Soviet line. The inescapable conclusion is that sanctions against a large, relatively powerful country seldom work.

The cost to the US economy, however, would be formidable. Conservative estimates place the cost of MFN withdrawal at more than dollars 10bn, as prices rose for inexpensive clothing, shoes and other products purchased by low-income consumers. Additionally, China would almost certainly retaliate by curtailing US exports and investment in its fast-growing economy.

Finally, there is no accurate way to measure the thousands of US jobs that could be lost in firms that rely on Chinese-produced goods to remain competitive, most notably in the transport, port services, distribution and retail industries. The potential costs are so high that the Chinese leadership rightfully regards the US threats as less than credible.

This explains Mr Clinton's tempered remarks last week on China's human rights policies. There is every indication that he will find a way by 1 June to disconnect them from the MFN negotiations. It is to be hoped the President will also be able to end the war within his own administration over what objectives to push: human and social rights versus economic security and trade goals. The most important thing is to send a clear message to everyone concerned.