Commentary

China’s Accession to the WTO: A Winning Outcome for both China and the United States

By Mark A. Groombridge
This article appeared in China Brief on July 24, 2001.

After close to fifteen years of on-again, off-again, arduous negotiations, the People’s Republic of China (PRC) is finally poised to enter the World Trade Organization, the institution governing the international trading system. Premised on the principles of free trade, the WTO requires new member nations to abide by rules and norms that promote the free flow of goods and services across borders. Often times, countries will have to undertake sweeping economic reforms to move the country in a more market-oriented direction. China is no exception.

Despite legitimate concerns about China’s ability to live up to all the obligations to which it has committed, it is in the interest of both the world trading community and the United States to see China enter the WTO. It serves the economic interest of all save those industries already failing in the United States and the heads of state-owned monopolies in China. More broadly, it is in U.S. security interests to help integrate China peacefully into the international community. Doing so will strengthen the hand of pro-reform elements in the Chinese leadership.

BENEFITS TO THE UNITED STATES

Economically, the United States stands to gain a great deal from China’s accession to the WTO. China is the United States’ thirteenth-largest market abroad for U.S. goods. These exports support high-quality jobs in sectors of the American economy that are key parts of the engine driving the growth the United States has experienced in recent years. Notable among these sectors are aircraft, power-generating equipment, telecommunications equipment, computers, fertilizers, medical equipment and organic chemicals.

Both U.S. consumers and the U.S. economy have benefited from the expanding trade relationship with China over the past twenty years. In 1978, when the PRC launched its ‘Open Door’ policy and abandoned its largely autarchic past, trade between the United States and China stood at an inconsequential US$2 billion. Today, China is the United States’ fourth-largest trading partner, trading goods worth some US$100 billion.

There is strong reason to believe that this beneficial trading relationship would expand were China a WTO member. It is true that the United States would incur short-term losses in some sectors such as footwear and textiles, but we should weigh these short-term dislocation costs against the long-term benefits as we rationalize our economy to more accurately reflect our strengths. It is also important to mention that China’s accession will simply be accelerating a process that has long been underway. Countries in Latin America and Southeast Asia have long had lower labor costs than the United States, which is why we have seen a shift of labor-intensive industries to those countries. China will be taking jobs primarily from those countries, not from the United States.

The vast majority of U.S. industries will benefit from China’s accession to the WTO. U.S. firms will have unprecedented access to China’s burgeoning market economy. Opportunities in sectors such as agriculture will expand remarkably, where tariffs on beef products will be lowered from the current 45 percent to 12 percent by 2004. A range of other industries will benefit as well, notably financial services, telecommunications and information technology. These are the sectors that most reflect U.S. strengths.

Mark A. Groombridge is a research fellow with the Cato Institute’s Center for Trade Policy Studies.