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Pegged

The Bush administration brings out the heavy artillery in the hopes of closing the trade gap with China.

11:00 PM, Nov 3, 2003 • By IRWIN M. STELZER
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Bush is gambling on three things. First, China's policy is causing an unsustainable inflationary build-up and asset bubble within that country. Second, Chinese premier Wen Jiabao and more than 100 executives and ministers are headed to the United States for a multibillion dollar spending spree on telecoms, aviation, and other equipment. That should build political support for China in important domestic constituencies.

Third, the president is betting that the current growth spurt will create lots of jobs, and deflect attention from the trade deficit. He may win that bet. Economic growth in the third quarter hit an annual rate of 7.2 percent, the fastest in almost 20 years. Business spending on equipment and software leaped to a15.4 percent rate, and discounts on automobiles and tax rebate checks drove consumer spending on big-ticket items to an annual rate of 26.9 percent.

No one expects the economy to continue growing at that rate. Word is that the Fed is guessing that the fourth quarter will see the economy grow at a robust 4.5 percent. If it does, the fuss over China may prove no longer lasting than the satisfaction from a Chinese dinner.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.