Rep. Nancy Pelosi and Sen. Harry Reid have not put trade policy at the top of their agendas for the 110th Congress, but it is an issue Democratic leaders are surely thinking about. Today, a congressional panel’s much-awaited report on U.S.-China trade policy hit the Beltway, and if early press reports are accurate, its bad news is especially bad for the incoming leadership.

Democrats will need to spend lots of time – certainly more than they would like – on trade policy and the annual report of the U.S.-China Economic and Security Review Commission shows why. Once again, Congress is being told China’s undervalued currency is fueling the U.S.-China trade deficit and, once again, Congress is being told the Chinese government does not respect intellectual property rights. And, once again, the question will circle Washington: “What is Congress going to do about it?”

It’s a question Democrats are going to inherit come January, to the delight and fear of Republicans. Delight because there is no good answer to the question, fear because they can no longer prevent Democrats from answering it.

China’s trade policy in particular matters for two big reasons. For one, how Senate and House leaders handle U.S.-China trade problems will be the best show of how powerful the protectionist wing of the Democratic Party has become. After six years of conservatives looking the other way, Democrats finally have the votes to push President George W. Bush on unilateral tariffs or action at the World Trade Organization.

Republicans, for their part, are partially to blame for the isolationism gripping the Rust Belt and other heavy manufacturing states. Bush has failed to make the case for free trade and explain how protectionist policies – such as his destructive steel tariffs – invariably handicap the economy. The president and Republican leaders have also made shockingly little progress on updating antiquated economic and social programs – Medicare and Social Security, among others – to fit the realities of the 21st century.

The result of this will be seen in a slew of new Democratic senators who are itching to build a 50-foot wall from Washington state to Texas. Ohio’s Sherrod Brown will be among the most virulently anti-free-trade senators in the new Congress – he is the author of the aptly titled, “Myths of Free Trade.” The slew of labor unions that supported Democrats in last week’s election is sure to be pounding the table next year as well.

The question remaining for Pelosi and Reid is how to sell such flagrant isolationism to Americans. This is the second reason U.S.-China trade problems matter so much. Democrats would be right to complain the Chinese are not playing by the rules; free trade is supposed to be reciprocal, and today it appears closer to suicidal.

Also, the communist government in China has made exactly zero steps to improve either its human rights record or environmental standards, not to mention liberalize any of its authoritarian political processes. Democrats could threaten tariffs or even dump Bush’s prized “fast track” power on these grounds, and without being labeled isolationists.

Free trade agreements being negotiated with for example, South Korea – are another story. The South Koreans have been cooperative in dealing with North Korea, mostly supportive on Iraq, and big advocates for human rights improvements across Asia – in short, everything the Chinese have not been cooperating with. Sabotaging a trade deal with South Korea can only be sold as protectionism, and a good bet would be that most Americans won’t be buying.

There are, of course, other important implications for how the Democrats take on China. The best explanation for Republicans’ dragon-petting over the last six years is North Korea. Another is the cost benefits U.S. companies get from sourcing in China. Pushing too hard on Hu Jintao and his comrades in Beijing could seriously upset both the financial markets and U.S. security.

At this point, the Chinese would be smart to stop playing the bad boy and start acting like the economic superhero they may soon be. The Chinese have their motives for not compromising on trade policy, but Democrats in Washington may soon give them plenty of reason to do otherwise. The last thing a gaggle of overexcited protectionists need is an excuse to set America back 10 years on free trade. Every country – China in particular – should be careful not to give them one.

Darren Bernard welcomes comments at [email protected].