Beijing's trade war strategy.

Shortly before Thanksgiving, the Financial Times of London published an interview with Li Ruogu, deputy governor of the Chinese central bank. Noting that the U.S. trade deficit was expected to top $600 billion in 2004, Li insisted that the Communist Chinese regime would never abide such a state of affairs. "If there is a small deficit, we are not concerned," he stated. "But certainly we don't want to run into the U.S. situation of having a trade deficit of 6 percent of GDE That is not sustainable."

Commenting on the U.S. trade deficit, Li offered some advice to Washington: "They should concentrate on sectors like aerospace and then sell those things to us and we would spend billions on this. We could easily balance trade."

"Beijing is eager to convert its growing economic clout into military power," notes William R. Hawkins, Senior Fellow for National Security Studies at the U.S. Business and Industry Council. The arrangement proposed by Li would require that Washington "remove security restrictions on the sale of weapons and military technology to China," he continues. "Beijing would certainly shake loose billions from its massive foreign exchange reserves if it could get access to the innovations that have given America's armed forces capabilities unmatched anywhere else on the planet."

In addition to its huge and growing trade surplus with the U.S., Beijing is courting European Union aerospace firms, and the EU is preparing to lift its ban on military sales to China. "This would give Beijing access to the world's second-best weapons technology and would be a solid boost over the Russian systems it has [previously] bought," Hawkins points out. Dealing with the EU would also "put pressure on Washington to lift its restrictions, especially with continued pressure from greedy American firms."

It would also accelerate the "harmonization" of U.S. trade policy with the EU, as recognized in a statement from the Aerospace Industries Association (AIA): "If in spite of U.S. arguments, the EU decides to lift its blanket ban on defense exports to China, AIA would then recommend that the U.S. replace its current complete ban with targeted export controls that would be harmonized as closely as possible to the EU."