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China's Trade Status Is Not a Magic Bullet

October 02, 2000|GREG MASTEL | Greg Mastel is director of the Global Economic Policy Project at the New America Foundation, a nonpartisan public policy institute in Washington

In the recent Senate debate on extending permanent normal trade relations, or PNTR, to China, passage was often portrayed as the solution to everything from U.S. trade problems with China to Beijing's intolerance of dissent. In fact, these expectations are grossly unrealistic. PNTR may be a modest improvement in U.S. trade policy toward China, but it is far from a panacea for U.S.-China problems.

Beginning with the Tiananmen massacre in 1989, the United States and China have had 11 years of tense relations. Bilateral disputes have covered topics from the protection--or lack thereof--of intellectual property in China to the status of Taiwan. Since the demise of the Soviet Union, the United States has a longer list of bilateral disputes with China than it has with any other country.

Proponents of PNTR seem to believe that it will solve or help to solve many of these problems. In particular, permanent normal trade relations is painted as a solution to the rapidly expanding bilateral trade imbalance with China and billed as a revolutionary improvement in U.S.-China trade policy. If--in connection with the granting of PNTR--China joins the World Trade Organization and opens its markets to U.S. exports, the bilateral trade imbalance could be reduced in the long run.

That, however, is an enormous if. Despite expectations of a quick settlement, the final negotiations on China's accession drag on in Geneva. Once they are completed and China becomes a WTO member, China is unlikely to become an open market overnight. In fact, the forces of protectionism are deeply entrenched in China and have repeatedly demonstrated their political power. In large part because of their actions, there have been serious compliance problems with every trade agreement the United States has negotiated with China. The WTO certainly does not provide a magical solution to these compliance problems. Given the opaque operations of the Chinese bureaucracy and its weak rule of law, it is entirely possible that the WTO--which is premised upon transparency and the rule of law--will prove unable to enforce its rules on China.

PNTR is particularly unlikely to reduce the U.S. trade deficit with China any time soon. As the U.S. International Trade Commission noted last year, China's accession to the WTO would also obligate the United States to rapidly open its textile and apparel market to China. In the estimation of the commission, this is likely to sharply increase imports from China and expand the bilateral trade imbalance, at least in the short term. A number of other economic estimates have reached similar conclusions.

Proponents also argue that PNTR will result in a rising middle class in China, and increased contact with Western business will democratize and liberalize China. This is a long-term hope, but there is little evidence of this democratizing effect in recent years. China has taken in more foreign direct investment than any other country aside from the United States and become one of the world's leading trading powers. Still, based on the U.S. State Department's annual report on human rights in China, respect for human rights has not noticeably improved since Tiananmen Square. Intolerance of dissent and repression of religion is still the norm. It may be that economic contact will ultimately bring change in China, but that change may well be very long in coming.

Other problems between the United States and China, such as the status of Taiwan, sales of dangerous weapons, proliferation of missiles and the status of Tibet, are extremely unlikely to be resolved by PNTR. The increasing success of true democracy in Taiwan, in particular, seems to decrease the likelihood of peaceful reunification between Taipei and Beijing any time soon--a democratic people seem unlikely to willingly place themselves under totalitarian control. The flowering of democracy also increases sympathy and support for Taiwan in the United States. This could well lead to increased conflict between the United States and China over Taiwan in coming years.

Despite the sometimes-exaggerated claims of proponents, PNTR is not a solution to U.S.-China problems. It is true that the annual threat of withdrawing normal trade status from China had lost credibility with Beijing and served no real purpose. It is also true that Chinese membership in the WTO creates an effective obligation on the United States to extend permanent trade status. Even with PNTR, however, the trade problems, human rights abuses, military competition and foreign policy disputes that have created tensions between Washington and Beijing are as likely to grow worse as they are to fade in the coming years.

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