Commentary | Trade and Globalization

The China trade debate

Opinion pieces and speeches by EPI staff and associates.


The China trade debate

by Jeff Faux

Congressional approval of permanent normal trade relations with China would be a tragic mistake.

First, it would signal to the world that the United States has abandoned the cause of putting worker rights and environmental standards into international economic agreements.

The Chinese government’s record of oppression is well known. Its authoritarian blend of state control and privatization of public assets to elites (a la Russia and Mexico) has brutally repressed workers to keep labor costs low in the pursuit of expanding exports. Markets have not made the Chinese leaders more humane. The State Department’s own 1999 human rights report on China concludes that the Chinese government’s “poor human rights record deteriorated markedly throughout the year, as the government intensified efforts to suppress dissent, particularly organized dissent.”

Under these conditions, U.S. sponsorship of China’s membership in the World Trade Organization (WTO) reduces to zero the chances of adding any worker and environmental protections to balance the investor protections in the WTO system. Ironically, it will strengthen the arguments of those who want to abolish the WTO rather than to reform it.

Second, the China deal will encourage U.S. multinationals to outsource production — for the purpose of importing back to the United States — to a country where wages are suppressed at the point of a bayonet. As in the North American Free Trade Agreement (NAFTA) debate, the China lobby promises vast markets for U.S. goods. But the NAFTA experience taught us that the real prize was not the phantom Mexican middle class; it was the Mexican worker with high productivity and no bargaining power. A vote for the U.S.-China pact is a vote to exacerbate the already huge U.S. trade deficit with China — $70 billion and rising.

The China lobby also argues that the benefits of greater trade override consideration of human rights in China and the loss of manufacturing jobs here. But the claim of great benefits does not pass the laugh test. The best the Clinton Administration could come up with is a “study” by the International Trade Commission, using an economic model embodying every possible favorable assumption to the deal. Among other omissions, it ignored the impact of outsourcing and a Chinese devaluation. Despite this rosy scenario, it managed to find benefits to the United States amounting to a grand total of $1.7 billion. In a $9 trillion dollar economy, this is less than the statistical error in calculating U.S. gross domestic product!

The false claims involved in selling this deal have been shameless. The Administration rounds up votes from farm states by saying that the Chinese have agreed to buy 7.3 million tons of wheat. Meanwhile, the Chinese negotiator publicly states that they have agreed only to give the United States a “theoretical opportunity” to sell more wheat.

Finally, we are told that we have to sign the China pact in order to support the
“reform” faction in Chinese politics. This was the same argument for NAFTA, where the reformers turned out to be even more corrupt and incompetent than the old “guard” politicians they were supposed to be reforming. If the Administration couldn’t get it right in Mexico, what makes us think they’ve got it right in a much more complex and far away China?

Not being able to convince the Congress on the economics, the Administration has fallen back to a less than credible national security rationale. We cannot, says the President, isolate China. But China needs to earn hard currency in the world. Since it is now enjoying a huge trade surplus with the United States, while running deficits with Japan and Europe, we can be certain that the one nation in the world that China will not isolate herself from is the United States.


Jeff Faux is president of the Economic Policy Institute in Washington, D.C.

See related work on China trade | Trade and Globalization

See more work by Jeff Faux