The Price of China’s New Policy
‘A profound and historic moment” is what U.S. Trade Representative Charlene Barshefsky called last week’s agreement between the U.S. and China, under which the world’s most populous country will join its most important trade organization.
She was right. The agreement over China’s accession to the World Trade Organization does more than pave the way for China’s entry into a rules-based trading system. It does more than get U.S.-China relations back on track after the unfortunate U.S. bombing of China’s Belgrade embassy during the Kosovo war. It does more than repair the damage President Bill Clinton did to himself and to Chinese Premier Zhu Rongji when he committed what administration officials concede was a grievous error in turning down Zhu’s WTO offer during the Chinese leader’s spring visit to the United States.
If it holds up, the U.S.-China agreement signed last week in Beijing helps achieve the primary U.S. foreign-policy goal in Asia since the American Revolution: guaranteeing U.S. merchants, bankers, factories and farmers safe and rule-based access to what will someday be the largest consumer market in the world.
The quest for free trade with China has deep roots in U.S. history. Boston merchants resented Britain’s navigation acts that forced Americans to conduct their foreign trade through the mother country, and it was a British tax on Chinese tea that sparked the Boston Tea Party. After the revolution, John Adams urged his countrymen into the China trade: “There is no better advice to be given to the merchants of the United States than to push their commerce to the East Indies as far and as fast as it will go.” They were quick to take his advice. By 1800, only 17 years after the end of the American Revolution, more than 100 U.S. merchant ships had sailed for Guangzhou.
Throughout the 19th and 20th centuries, defense of China trade was a major preoccupation of U.S. statesmen and businessmen. Fear that Japan and greedy European imperialists would divide a weak Chinese empire into exclusionary economic zones led the United States to proclaim the “open door” policy in 1899. Forty years later, U.S. opposition to Japanese efforts to conquer China and control its markets started the chain reaction that led to Japan’s attack on Pearl Harbor and U.S. entry into World War II.
What the United States wanted from the 1700s on was simple: free access to the Chinese market and legal protection for U.S. merchants and investors when they were there. The current agreement represents, by far, our best chance since Adams’ day to get them.
The agreement, however is only the first step, and there are plenty of problems to come. In the U.S., the problems will hit before the deal takes effect, as Congress and public opinion wrestle with putting U.S.-Chinese trade on a permanent basis. In China, the problems hit later, when the agreement will force China to accelerate the wrenching reforms of its economy.
In the United States, we now get the shootout at the OK Corral on China policy. Under current law, Congress must vote annually to continue “normal trade relations” with China. Implementing the WTO agreement will require one final, climactic vote on making that normal trade status permanent.
This vote is the big one on China policy: Once China joins the WTO, the U.S. generally, and especially Congress, will lose any leverage the annual trade votes now provide.
The anti-Beijing coalition--trade unionists, Taiwan sympathizers, human-rights and environmental activists and China hawks on defense grounds--will probably, though not certainly, lose this vote. The Taiwan lobby, normally a potent force in the China debate, will take a back seat on the trade vote; Taiwan knows its admission to the WTO depends on China getting in first.
Human-rights activists will oppose the agreement, but their opposition will be softened by the realization that one effect of WTO membership in China will be to strengthen the rule of law, at least where commerce is concerned. This won’t end human-rights abuses in China, but establishing an independent judiciary is an important first step in any long-term plan to guarantee individual rights for Chinese citizens.
That leaves labor unions leading the charge. From labor’s point of view, free trade with China is a major-league headache. Not only are Chinese wages low and independent trade unions illegal, China has so many unemployed and underemployed workers that basic factory wages may take decades to rise. The Chinese government estimates that something like 120 million people in its rural areas represent surplus labor; most of these people would happily work for $90 a month, an amount many U.S. workers expect to earn in a day.
Labor will fight, but labor will probably lose. Telecommunications and financial-services firms, farm interests, manufacturers and entertainment companies that stand to benefit from China’s sweeping and strategically constructed concessions are ready to play hardball. In an election year, with candidates of both parties desperate for campaign contributions from industry groups, business and farm support counts.
This is going to be a donnybrook, but with unemployment lower than it has been for a generation and manufacturing-sector labor unions already weakened by years of declining employment, the odds have to favor congressional support for the deal.
With congressional approval, U.S. domestic worries will be largely behind us, but China’s troubles will only be starting. In the short to medium term, Chinese experts predict a net loss of 10 million to 20 million jobs as agricultural prices fall and inefficient factories face first-class competition. China’s leading think tank warns that the deal could precipitate a major banking crisis unless the government moves decisively to restructure the economy and financial system.
The deal is an audacious, high-wire attempt by Chinese reformers to force conservatives to step up the pace of economic change. Rust-bucket state-owned industries will face intense pressure to restructure or die. Horrified by the mass unemployment and social unrest that restructuring could bring, and appalled at the threat to their own power base in local party structures and state-owned industry, conservatives in China have, so far, managed to slow down the pace of change, like a swimmer wading inch by inch into cold water.
Reformers think China should dive right in: The slower the transition to a full market economy, the more it will hurt. Under WTO rules, if conservatives won’t dive in on their own, foreign competitors will push them. One way or another, China’s transition to a fully market-based economy will speed up.
Maybe. But it is one thing to sign an agreement, another to carry it out. Chinese conservatives will now attempt to slow down the pace of implementation, and they have often managed to evade international obligations in the past.
No one really knows whether China can make the transition to a market-oriented, rule-based economy without social and political upheaval. But Chinese president Jiang Zemin and his protege Zhu have decided to give it a try. That is one more reason why this agreement marks a profound and historic moment in world affairs. *
