COLUMN RIGHT/ DANIEL M. KOLKEY : Lousy Odds in Playing Trade Status Card : Bolstering China’s bustling economy would better achieve U.S. goals in both nations.

Visit China today and you can’t help but marvel at the miracle spawned by the free-market reforms begun by Deng Xiaoping 15 years ago. Wherever one looks, commerce bustles--on the streets of downtown Shanghai, along the horizon of Beijing where billboards, once reserved for communist exhortations, now display consumer goods, and in the confident faces of the people industriously striving for a better life. This is the portrait--and the reality--that animates the advocates of unconditional renewal of China’s most-favored-nation status.

Arrayed against them are various members of Congress, and now President Clinton, who seek to condition China’s MFN status next year on progress in human rights and other issues.

In fact, while America has a fundamental interest in the promotion of human rights, the conflict between promoting trade and supporting human rights in China is a false one. Listen to the words of Pei Minxin, one of the Chinese students who has spoken on behalf of the democracy movement suppressed by the government in Tian An Men Square five years ago: Should China’s MFN status be revoked, “(t)he capitalist revolution will screech to a halt” and “the recuperating democracy movement will face a renewed backlash.”

Our failure to recognize this is a function of our failure to ask two fundamental questions that should be asked at the beginning of any U.S. foreign-policy initiative: What is the capability of our policy to achieve its goals, and what are the consequences of its implementation?

First, does the United States have the capability to influence China’s human-rights policy by denying MFN status? While the threat of denying MFN status certainly can have an effect (witness China’s recent release of one of its longest-held political prisoners, Xu Wenli, in order to influence the debate over MFN), denial itself would probably not. No proud nation like China will allow itself to be openly pressured to change its policy, particularly one it characterizes as domestic.

Indeed, such pressure can have the opposite effect. For example, in response to the Soviet Union’s unconscionable imposition in 1972 of an exit tax on Soviet Jews seeking to emigrate, Congress introduced the Jackson-Vanik Amendment, which sought to deny MFN status for communist countries with restrictive emigration practices. Its introduction had an effect: The Soviets lifted the exit tax. Its enactment in 1974 did not: The Soviets had to show that they could not be pressured and their emigration drastically dropped, from 35,000 in 1973 to 13,500 in 1975.

This partly answers the second question: What are the consequences of denial of MFN status for China? Denial would hinder the further development of a market economy in China today, the expansion of which would ultimately create the groundwork for political freedoms. China is now the third-largest economy in the world and last year had the world’s fastest growth rate--12%. In 1976, 80% of China’s production was owned by the state; now only 50% or less is so owned. Increased trade with, and investment from, the United States strengthens China’s private sector and empowers provincial leaders whose independence is dependent on foreign investment, thereby redistributing economic power from the central government to the provinces and individuals.

Just as the transition from feudalism to capitalism led to pressure for political rights from the newly assertive merchant class, and just as the development of market economies in South Korea and Taiwan has led to increased democracy in those countries, so, too, will the dispersion of economic power in China lead to political rights over time.

Additionally, denial of MFN status would reduce U.S. economic influence in China, which would necessarily affect our role in Asia’s strategic balance, a region that former Singapore Prime Minister Lee Kuan Yew has described as having “no indigenous geopolitical balance.”

U.S. foreign policy in the 20th Century has always had a strong and laudatory moralistic strain. But with the end of the Cold War, we need to ask about the capabilities and consequences of our policies more than ever. During the Cold War, the existence of the Soviet threat restrained (and thus disciplined) our decision-making by requiring us to focus on the consequences of our policies on our national interests. After all, our survival was at stake. Today, that restraint is gone. Our greater margin for error means we have a greater margin for miscalculation. We must distinguish between productive and counterproductive moralistic policies. The decision whether to grant China MFN status--and the questions we ask in arriving at it--will sorely test our ability to have an effective foreign policy.