U.S. Trade Agreement With China Is Lopsided

0 Comments | Insight on the News, Jan 24, 2000 | by Kenneth R. Timmerman

As President Clinton makes his pitch to Congress for allowing Communist China to enter the World Trade Organization, he faces a powerful coalition of liberal and conservative groups who believe the deal negotiated by U.S. Trade Representative Charlene Barshefsky should be rejected.

On the left, the AFL-CIO argues that Communist China uses prison labor, does not allow nongovernment labor unions to operate and pays workers pennies on the dollar compared to workers in the industrialized world. Human-rights activists argue that the communist regime systematically imprisons its political opponents and occupies by military force three formerly sovereign republics (Tibet, Eastern Turkestan and Inner Mongolia), which comprise fully one-half the land mass generally known as the People's Republic of China, or PRC. Environmentalists are aghast at China's high-polluting ways, its rust belt industries that spew chlorofluorocarbons, or CFCs, into the atmosphere at alarming rates and the total lack of any environmental standards.

On the right, antiabortion activists argue that China's practice of forced sterilization and forced abortion merits U.S. sanctions. Conservatives angered at the sell-off of U.S. high technology to Communist China by the Clinton-Gore administration believe that U.S. national security interests warrant a cooling-off period to slow down this administration's efforts to increase China's access to U.S. military technology.

Clinton will summon his own coalition of Silicon Valley exporters, Republican free traders and liberal Democrats who believe the United States has no right to impose its vision or values on other countries through trade restrictions or national legislation. They will argue that free trade creates American jobs, fuels economic expansion and even promotes democracy by raising the living standards of Chinese workers.

Added to this already volatile mix is the increasing uneasiness of many Americans with the globalization of our national economy, as evidenced by the riots last month in Seattle during the World Trade Organization, or WTO, ministerial conference. While some critics of globalism would like to turn back the clock to shelter American workers from foreign competition, not all critics of the WTO reject globalism, despite efforts by editorialists such as Tom Friedman of the New York Times to so taint them.

Clearly, there is a lot of passion on all sides of this issue. What is needed is some coolheaded analysis of what was actually accomplished by Barshefsky in her trade negotiations with the Chinese in November, and what was not.

Fact No. 1: U.S. markets already are wide open to imports from the PRC, yet the WTO agreement negotiated by Barshefsky is being touted for lowering U.S. as well as Chinese trade barriers.

U.S. tariffs on Communist Chinese goods entering this country average 5 percent, according to Alan Tonelson, who heads the U.S. Business and Industry Council, a conservative group that opposes the WTO deal. This compares to China's average import tariff, which stood at 42.1 percent in the mid-1990s.

These lopsided tariffs and trade barriers have led to lopsided U.S. trade deficits with the PRC. In 1998, the last year for which complete figures are available, the trade deficit reached $56.9 billion, according to Barshefsky's own office, while Communist China imported a scant $14.3 billion worth of U.S. goods -- less than Belgium and less than Taiwan, a democratic state which has been a steadfast U.S. ally for 50 years.

Furthermore, China has lowered its tariffs twice since 1995, first to 23 percent and then to 17 percent -- the same level Barshefsky said she had achieved in her Nov. 15 agreement with Beijing. This has not led to a significant increase in U.S. sales to China; on the contrary, the trade deficit with the PRC widened last year. In the scant details released to date by the U.S. Trade Representative office, USTR, no mention is made of this continued tariff imbalance. In effect, the Barshefsky agreement perpetuates a unilateral competitive advantage for Communist Chinese producers over American companies. Far from opening up Chinese markets, it gives the WTO's Good Housekeeping Seal of Approval to China's protectionist practices and laws.

Fact No. 2: According to a 1997 study by the Federal Reserve Bank in New York, 80 percent of Communist China's imports are incorporated into manufactured goods, which are then reexported to the industrialized world. Only 20 percent of China's imports actually are consumed in China.

The United States does a brisk trade in computer chips with China. That counts as a U.S. export. But those chips then are incorporated by Chinese workers, who are paid a fraction of what U.S. workers (or Taiwanese workers) receive, into computers, hard drives and cellular telephones that are then reexported to the United States and to world markets. Major U.S. exporting lobbies, led by the U.S. China Business Council, argue that any restrictions on trade with China will cripple the ability of U.S. businesses to reach an emerging market of 1.3 billion consumers. The truth is quite different. China's best-paid workers -- the 200 million or so persons who constitute China's emerging consuming class -- earn an average of less than $600 per year. They will not be buying expensive U.S. consumer goods but will purchase cheaper goods produced in China.