The Need to Engage China

This article originally appeared in The Asian Wall Street Journal on October 9, 2002.
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Recent reports by the U.S.-China Security Review Commission and the Pentagon show a deepsuspicion in Washington that China will become an increasing threat to American global economicand military power. It would be a major mistake, however, to backslide from a policy of engagementinto one of containment and for the U.S. to treat China as an adversary rather than as a normal greatpower. Managing relations with China, and avoiding the extremes of confrontation or wishfulthinking, will be one of the key challenges facing American policy makers in the next decade.

China's economy has expanded precisely because Beijing has allowed greater economic freedom. Therapid growth of trade has increased per capita incomes in China and provided the Chinese people withnew opportunities. In 1978 the total value of China's imports and exports amounted to only $20.6billion. By the end of 2001, their value had increased to $509.8 billion. China's desire to compete inworld markets is good for consumers and poses no threat to American security.

Protectionists in the U.S. who point to large and growing trade deficits with China and to increasedAmerican investment in China should not be allowed to block trade liberalization by injudicious useof national security and human-rights arguments. Further liberalization of U.S.-China trade is a winwinstrategy and can play an important role in promoting peace and prosperity. Containment would dojust the opposite.

The commission's July report to the U.S. Congress, "The National Security Implications of theEconomic Relationship between the United States and China," offered more than 40recommendations, many of which implicitly assume that China is a threat to American economic andmilitary power. Congress should not enact those recommendations that endanger a policy ofengagement with China. In particular, it should strongly oppose the commission's proposal to create a"federally mandated corporate reporting system." That system is designed to force U.S. firms doingbusiness in China to provide extensive data on all their business activities, even those that have nosignificant impact on national security.

Under the proposal, American firms investing in China would be strictly monitored and have toaccount for their investments, and how these might affect jobs in the U.S. Enacting such arecommendation would impose a heavy burden on U.S. firms and put them at a competitivedisadvantage in the Chinese market. Reduced investment in that market would have a negative impacton the American market as subsidiaries in China imported fewer U.S.-made components.

The commission's report also supports the renewal of the Super 301 provision in U.S. trade law andasks the Bush administration to "identify and report on other tools that would be most effective inopening China's market to U.S. exports if China fails to comply with its WTO commitments." Such a10/9/2002 http://nrstg1s.djnr.com/cgi-bin/DJInteractive?cgi=WEB_ST_WC_STORY&GJANu… would be unwise. China should be given ample time to meet its obligations to the World TradeOrganization, and to the U.S. under the 1999 bilateral agreement on market access.

America should work through the WTO dispute-resolution mechanism and target specific cases thatare significant rather than try to prosecute every infraction of the trade agreement. It is in Washingtonand Beijing's interests to open China's markets and, at a time when Beijing is undergoing importantleadership changes, China's reformers need congressional support.

Likewise, Congress should not follow the commission's advice to "amend the CVD [countervailingduty] law to specifically state that it applies to NMEs [nonmarket economies]." The purpose of thatrecommendation is "to protect U.S. industries from unfair competition from the imports of theseeconomies." In fact, China is unfairly treated by the use of NME methodology in determiningproduction costs in antidumping cases. The methodology is grossly defective and prevents China fromrealizing its comparative cost advantage. Moreover, China has a higher economic freedom rating thanRussia, yet the European Union has dropped the NME label for Russia. America should do the samefor China; U.S. consumers would gain as a result.

Protectionist interests should not be allowed to dominate future U.S.-China relations, and thecommission's report sends the wrong signal in this respect. Instead of seeing China as a threat, there isa need to cooperate with China in ways that are mutually beneficial. As Joseph Borich, executivedirector of the Washington State China Relations Council, noted: "The draconian system thecommission would create will do little or nothing to promote the long-term security of the U.S.Conversely, it would undermine shared Sino-U.S. interests, create a whole new layer of federalbureaucracy and bureaucratic requirements to bedevil U.S. business and lay the basis for a selffulfillingprophecy that could actually diminish our security."

Continued trade liberalization and engagement on a number of fronts, including a more liberal visapolicy that permits Chinese students to study in the U.S., especially in the fields of law, economicsand the humanities, will have positive long-term benefits. Visa procedures should be re-examined. Solong as individuals pose no threat to America's national security, they should be encouraged toexperience its free society firsthand. Free trade can help normalize China and transform it into amodern economy and a civil society under the rule of law. Backsliding into protectionism cannot.

Both the commission's report and another from the Pentagon, which was also released in July, implythat as China grows wealthier its military spending will increase to the detriment of the U.S. and itsAsian allies. While that danger cannot be overlooked, the probability is small compared to the likelihood that, as the nonstate sector in China grows, the Chinese Communist Party will lose power and political reform will ensue.

The dark side of the Chinese communist state is disturbing and must not be ignored. But that unsavory record should not be allowed to hide the progress that the Chinese people have made since economic reforms began in 1978. Increased trade has promoted the growth of markets relative to state planning, given millions of people new opportunities, and substantially raised living standards, especially in the coastal cities where economic liberalization has advanced the furthest. The primary goal of U.S. foreign policy should be to further the liberalization trend in China by maintaining a cooperative, constructive relationship. The most direct means for achieving that goal is through closer trade ties.

James A. Dorn

James A. Dorn is a China specialist at the Cato Institute in Washington, D.C., and co-editor of China's Future: Constructive Partner or Emerging Threat? (Cato Institute, 2000).