China Needs Trade to Change

June 9, 1999 • Commentary
This article appeared in the Journal of Commerce on June 9, 1999.

The real issue facing Congress as it considers renewing normal trade relations (NTR) with China is whether to side with the forces of protectionism or to recognize the benefits of free trade. Protectionism closes markets, blocks the free flow of information, and limits peaceful cooperation through voluntary exchange. As such, the dynamic gains from trade are lost when political expediency trumps free‐​market principles.

Using the annual NTR recertification process to bash China has been counterproductive: It has given rise to an anti‐​American sentiment and has strengthened hard‐​liners. Unlike reformers, such as China’s Premier Zhu Rongji, hard‐​liners are much more willing to sacrifice commercial ties with the West to strengthen their positions of power.

When President Clinton rejected Mr. Zhu’s offer to make significant concessions in order to enter the World Trade Organization in April, he gave a victory to protectionists and undermined his own policy of engagement.

Demanding greater access to China’s markets without allowing greater access to U.S. markets is hypocritical and against the nondiscrimination principle that lies at the heart of the WTO.

By sending Zhu home empty‐​handed — after he had the courage to confront hard‐​liners, whose only goal is to protect state‐​owned enterprises and their own privileged positions — the President lost credibility and prevented Zhu from “saving face.” That error was compounded by the accidental bombing of the Chinese Embassy in Belgrade. The Cox report has further complicated U.S.- Sino relations.

What must be done now is to recognize that the only viable way to undermine the hard‐​liners and to help the Chinese people move toward a more prosperous, freer, and peaceful future is to continue our policy of engagement. Congress must make sure that U.S. security is not compromised — but too often national security is used to justify purely protectionist motives aimed more at saving U.S. jobs than U.S. lives.

America needs a principled trade policy that protects private property and freedom of contract while at the same time guarding against the transfer of sensitive technology that could be used to enhance China’s military capability.

Threatening China with trade sanctions or the denial of NTR is the wrong approach.

If Congress really wants to minimize the chance of a future conflict with China, a policy of engagement is the only sensible alternative. The present backlash in China against the U. S. is an indication that engagement has not gone far enough — not that it has failed.

It is time for the U.S. to make some concessions. First, the U.S. should drop the requirement that China accept so‐​called safeguard provisions that would restrict its exports of textiles beyond the WTO deadline of 2005.

Second, the classification of China as a “non‐​market economy,” for the purposes of determining whether it has violated anti‐​dumping statues, should be ended. The vast majority of product and material prices in China are now market‐​determined, and the nonstate sector is the major force behind China’s rapid economic growth. (The European Union and Australia already recognize China as a market economy.)

Finally, China should be admitted to the WTO as a developing country rather than as a developed country. That concession would not violate WTO rules and would give China’s reformers greater flexibility in dealing with hard‐​liners.

Deepening and stabilizing commercial ties between the leader of the free world and the PRC will assist those who wish to build a freer and more open society. Both Hong Kong and Taiwan support a policy of engagement and have recommended strongly that China be admitted to the WTO.

Even former Chinese student rights’ activist Li Lu, now an investment banker in Los Angeles, has argued in favor of normal trade relations with China–on the basis that trade is the one path that is open to the West to bring about real change in China.

According to Li, “The most important legacy of Tiananmen is a new generation of Chinese people who have embraced a spirit of independence and are dedicated to building a free and democratic society.” But that generation also knows that political dissent is not an option, so “business has become the ultimate expression of individuality.”

That fact should not be lost sight of as Congress debates the merits of China’s bid for WTO membership and permanent NTR.

About the Author
James A. Dorn

Vice President for Monetary Studies, Senior Fellow, and Editor of Cato Journal