Commentary

Clinton’s China Blunder

By Aaron Lukas
May 28, 1999

The U.S. bombs that hit the Chinese embassy in Belgrade may have destroyed far more than many Americans realize. In addition to the lives tragically lost, gone may be any hope of reaching an immediate agreement that would lead to China’s entry into the World Trade Organization.

Fortunately, the prognosis is not entirely bleak. Despite an initially harsh reaction, Chinese officials are now more circumspect. Entering the WTO “is not only in China’s interest, but also in the interest of member countries,” said Foreign Ministry spokesman Zhu Bangzao a few days after the bombing. President Clinton phoned Premier Zhu Rongji shortly thereafter to personally express his regret and to urge that both countries continue to work toward an agreement that would lead to China’s membership in the WTO.

Regardless of the ultimate outcome, the tension over China’s WTO status has been senseless. Indeed, it could have been avoided entirely if the Clinton administration had signed an agreement during Premier Zhu’s visit to Washington last month. At that time, China offered a trade-liberalization package that was unprecedented in scope. The historic chance to subject China to the discipline of the WTO was squandered because the United States — not China — caved in to domestic special interests. To benefit a few politically influential groups — most notably labor unions and textile and steel manufacturers — the administration rejected a deal that would have benefited the vast majority of Americans as well as Chinese.

The administration wants China to accept conditions on WTO membership that don’t apply to other nations. On textiles, Washington says Beijing must agree to be bound by U.S. quotas until 2010 — five years longer than is legal for existing WTO members. To appease steel companies, the United States is asking that China remain a “non-market economy” for the purposes of calculating anti-dumping penalties (Australia and the European Union have already upgraded China to market economy status). The process of calculating anti-dumping penalties against non-market economy firms has been, as trade journalist Greg Rushford recently observed, “one of the most abuse prone of the American anti-dumping regime.”

China has understandably balked at those special conditions, and it’s not difficult to see why. First, they have no economic justification. China has a legitimate comparative advantage in the production of textiles and some kinds of steel and should be allowed to sell those products under the same rules that govern other nations. Second, it will be very difficult for reform-minded Chinese leaders to sell a deal that opens the home market to foreign products but offers little new market access abroad. That, in essence, is what the Clinton administration is asking China to accept.

If the administration were serious about promoting trade, it could use the bombing as an excuse to drop its own protectionist demands. That would be an ironic twist: the communists in Beijing pressuring the United States to follow the free-trade path. But doing so would be in America’s best interest. The United States has everything to gain — an open market in China — and nothing to lose except a few self-defeating protectionist relics.

But even if the administration charts a sensible course, Congress could still wreck the deal. Specifically, anger at alleged Chinese spying and illegal campaign contributions could prompt some members to reject a WTO accession agreement out of hand. That would be a mistake. Foreign and trade policies shouldn’t work against each other — it is vitally important that the two be kept separate.

Critics charge that allowing China to enter the WTO would be to reward it for bad behavior. But WTO membership is not a reward; it is a commitment to institute unprecedented reform and economic openness. To block China from taking such positive steps because it has made mistakes in other areas only ensures that China’s policies will remain uniformly unsound.

Besides, as despicable as China’s behavior has been, the real blame must fall on the administration. After all, can we reasonably expect China to refrain from trying to influence U.S. elections if such influence is for sale? Washington routinely throws dollars at other countries for exactly the same purpose. Similarly, that China worked to obtain U.S. nuclear secrets is not a shocking revelation. To the contrary, espionage between great powers has always been the norm. Much more troubling is that the administration failed to plug security leaks after they were discovered.

Regardless of who is to blame, it is now the responsibility of the administration and Congress to look beyond short-term domestic politics and work together to further the national interest. The United States should end the wasteful annual debate over China’s trade status and instead agree to admit China into the WTO as soon as possible.

Aaron Lukas is an analyst at the Cato Institute’s Center for Trade Policy Studies.