Commentary

Tear Down the Great Trade Wall

By Aaron Lukas
August 11, 1998

Last month Congress voted to renew normal trade relations (NTR)— then known as most favored nation status — with China. The debate was especially contentious this year. Allegations against the Chinese government of human rights violations, questionable business dealings and illicit campaign contributions led some members of Congress to reconsider their usual support.

Unfortunately, because China is the only major U.S. trading partner without permanent NTR status, Congress could decide to disrupt trade next year. Cutting ties would be bad economics and worse foreign policy.

What would the loss of normal trade relations mean? The most obvious effect would be to force Americans to pay much higher prices for products from China. (Average tariffs would increase from 6 to 44 percent.) Because China tends to export mostly low-cost consumer goods, increased prices would have a disproportionate impact on the poor.

American businesses would also pay a heavy price. If the United States were to revoke China’s MFN status, China would certainly raise barriers to the $12.8 billion in American goods and services that it imports each year. That would devastate companies, particularly the smallest ones, that depend on trade with China.

The U.S. Chamber of Commerce, for example, reports that 20 percent of the 1997 sales of one 30-person electronic manufacturing company in Spokane, Wash., came from exports to China. Another three-person company in Phoenix, Ariz., depends entirely on China for its import-export business. And a Wichita, Kan., food equipment manufacturing firm that employs 160 people relies on China for 10 percent of its sales. “The reason China is important to us,” says the company’s president, “is that we are an entrepreneurial company — and China offers the most opportunity in the world.” Indeed, there are an estimated 200,000 American jobs directly linked to trade with China.

Refusing to grant NTR status would also help European and Japanese competitors who are unlikely to follow the U.S. lead in restricting trade. America’s global competitors are ready, willing and able to pounce on every market opportunity we leave behind.


Trading on normal terms doesn’t mean we ignore offensive behavior, but the best way to effect change is to stay engaged.


Some argue that NTR should be revoked in order to make an important moral statement. An admirable goal, but hurting our fellow Americans in order to send a “signal” to China is not morally praiseworthy.

Moreover, isolating China would do nothing to help victims of oppression there. “I can see no advantage accruing to anyone from injuring the genuine commercial relations that have so improved the lives of people around the world,” says the Rev. Robert Sirico, president of the Acton Institute for the Study of Religion and Liberty. “Trading with a country is not the same thing as placing a moral imprimatur on the government of that country.”

In other words, trading on normal terms doesn’t mean we ignore offensive behavior, but the best way to effect change is to stay engaged. Americans can’t help improve conditions in China if there are no Americans there. By isolating China, we only hurt ourselves and those Chinese who could have benefited from outside contact.

U.S. religious leaders are increasingly expressing that view. “I am in favor of doing all we can to strengthen our relationship with China and its people,” said Billy Graham during last year’s MFN debate. “China is rapidly becoming one of the dominant economic and political powers in the world and I believe it is far better for us to keep China as a friend than to treat it as an adversary.”

The Rev. Nelson Graham, Billy’s son, heads East Gates Ministries, which has been able to distribute 2 million Bibles to Chinese House Church believers — with the approval of Chinese authorities. Such work will not be possible if China is isolated.

There are other encouraging signs that engagement works. Though the Chinese leadership still governs under the pretense that it is administering a communist state, they have completely redefined the term. Tax rates have been slashed (and in some regions are actually lower than those in the United States), industries have been privatized, labor markets have been freed in relative terms, housing ownership is encouraged and growing and joint ventures with Western companies are now common.

In short, conditions in China are the best they’ve ever been and are improving.

America’s role as a great nation should be to push for lower barriers to trade and commerce all around the world, including in China. Renewing NTR this year was a good start, but it should be made permanent from now on.

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