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The Value of Close Business Ties to China

A big factor behind President Bush’s decision to extend most-favored-nation trade privileges to China--despite the Tian An Men Square massacre a year ago--is China’s impending selection of a partner to help it build aircraft.

In the so-called Trunkliner project, China envisions production of about 150 airliners in a joint venture with a major international plane builder. And as of now, Boeing and McDonnell Douglas--which have supplied planes to China since the 1970s--are the only companies in the running.

If the United States withdrew most-favored-nation status--which allows Chinese goods to enter the U.S. market at tariffs as low as any other country--it could open the way for Airbus Industrie, the consortium owned by four European governments, to make a bid for the business. And Airbus wouldn’t hesitate.

China’s potential may be unique in that it will be a bigger market for airplanes than cars for the foreseeable future. Simply put, the huge country--with a population four times larger than the United States and an area slightly larger than the 48 contiguous states--faces an awesome task of building a transportation system. It has fewer than 1 million cars today and an underdeveloped road system.

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So it has decided to move passengers by air and goods by land--airports being quicker and cheaper to build than superhighways, while roads and railroads can be made serviceable for freight. And that policy makes China a market for 300 to 400, or even 1,000, aircraft.

Which is quite a leap because China has bought or ordered barely 100 planes in the last 20 years. McDonnell Douglas has built 15 MD-80s and has 30 more on order in a joint venture with Shanghai Aircraft, which has been supplying parts to Douglas since 1979. Boeing has sold 64 planes to China, which supplies Boeing with tail fins for the 737.

That those relationships may be about to pay off for the Long Beach or Seattle plane builders influenced Bush’s decision on most-favored-nation status.

Yes, but what about Tian An Men Square? Shouldn’t the President have held back renewal of the trade privilege until China gave evidence of real democratic reforms? The answer, on balance, is no.

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Sure, the United States has economic leverage over China. It buys $12 billion worth--or fully one-fourth--of China’s exports, while selling it $6 billion worth of U.S. goods. (China’s exports are mainly textiles and toys, including Ninja Turtles and parts of Barbie dolls; it buys machinery, grain, aircraft and Jeep kits from the United States.)

But cutting off trade might well do more harm than good. It has before, when the United States stopped supplies for the Soviet gas pipeline a decade ago and ended up hurting Caterpillar Tractor more than the Soviets. Or earlier when grain embargoes hurt U.S. farmers and Deere & Co.

In the present instance, higher tariffs on Chinese goods would have hurt Hong Kong because most of China’s U.S. trade comes though Hong Kong. And U.S. business would have been hurt, of course.

Yet the effect on China might have been the opposite of U.S. intentions. China is not a predictable country--as a pair of recent books make clear.

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In “Beijing Jeep,” author Jim Mann, a former China correspondent for the Los Angeles Times, recounts the difficulties of U.S. companies, particularly those of an American Motors (now Chrysler) joint venture to build Jeeps in China. “From the outside China has always seemed malleable; from the inside it seems intractable, endlessly capable of frustrating change,” writes Mann.

And Tian An Men Square has a long history, writes Yale scholar Jonathan D. Spence in “The Search for Modern China.” Over four centuries, Spence points out, China repeatedly has gone through cycles of dissent, followed by repression and finally by change or reform.

The question for the United States is how to encourage the change or reform while discouraging--or at least not simply winking at--the repression. It’s a question, moreover, that we’ll face increasingly in this decade as U.S. policy shifts from a focus on national defense to one of trying to improve economic standing and competitiveness while spreading the ideals of democracy and morality.

So what should the United States do? It should support open economies and growing business, because there is no conflict with either U.S. interests or ideals in doing so. In the case of China, recall that it was the opening of the economy that brought forth demands for democracy--before a tyrannical government suppressed them.

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By keeping trade going now, the United States is continuing to encourage economic opening and improvement in the $300-a-year living standard of the Chinese people. Which is to say, it is continuing to encourage democracy and individual rights--and if U.S. companies benefit, so much the better.


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