Coexisting With China

Ever since the end of the cold war, the United States has searched for an organizing principle for its foreign policy. We seem to have found one in trade. It promotes (we believe) political as well as economic progress. It pries open closed societies, lifts the poor into the middle class, creates pressure for democracy and --by binding countries together commercially --reduces the odds of war. The Clinton administration, an ardent advocate of this theory, has applied it most energetically to China.

This is the essential context of the impending congressional vote (expected this week in the House) on China's trade status. It is, in some ways, a no-brainer. Clinton's request that China receive "permanent normal trade relations" (PNTR) should be approved. The trouble is not the policy but the way it's been sold. It has been merchandised so aggressively and loaded with such extravagant expectations --of how trade can democratize China and pacify our relations --that it seems doomed to disappoint.

Under "normal trade relations," China would enjoy the same low tariffs as other U.S. trading partners. It already does, but now Congress has to reapprove the tariffs every year. Clinton would dispense with this annual ritual as part of China's entry into the World Trade Organization (WTO), which sets global trade rules.

To gain WTO admission, China made many trade concessions. It will cut tariffs on U.S. industrial goods from about 25 percent in 1997 to 9 percent by 2005; most import quotas (on, say, fiber-optic cable) would end; tariffs on frozen beef would drop from 45 percent to 12 percent by 2004; restrictions on foreign investment would be relaxed. In return, all the United States does is to make its low tariffs permanent. This is a routine benefit that WTO members extend to each other.

The main argument for refusing it to China is that annual congressional review of tariffs creates "leverage" to promote better human-rights policies. Unfortunately, the actual leverage is slight or nonexistent. Even after the Tiananmen Square massacre in 1989, Congress renewed the low tariffs. Trade cannot easily be turned on and off according to political fashion.

We must deal with China on many issues: Taiwan, the Korean Peninsula, nuclear nonproliferation, the environment, as well as trade and human rights. For Congress to reject Clinton's request would signal unmistakable hostility. There would be a harsh anti-American reaction in China. Our relations would deteriorate for no obvious gain. "China is not an enemy," as former secretary of State James A. Baker III recently wrote, "but America can make her one."

The harder question is whether trade can make China a friend. The Clinton vision is that it will become a richer, consumer-driven society. WTO membership --requiring China to follow regulations and procedures --will promote the rule of law. The advance of middle-class pleasures and the decentralization of production will gradually weaken communist control and lead to more democratic government. American and Chinese values and interests will slowly converge.

This pleasing vision is plausible ("A vote for China's freedom," says the latest Economist magazine). But it may also be a fantasy. "As they have so often in the past, Americans are overestimating the ease of changing China," writes the Los Angeles Times's veteran China correspondent James Mann in The American Prospect magazine. Clinton's vision rests on optimistic assumptions: that consumerism dilutes nationalism; and that China's internal problems don't neutralize the benefits of trade.

The most obvious problem is the economy. It grew 7.1 percent in 1999, but this was the seventh consecutive year of progressively slower growth, reports economist Nicholas Lardy of the Brookings Institution. Moreover, the growth figure is artificially bloated, because it includes a huge buildup of "unsaleable inventories... of low-quality goods for which there is little or no demand," says Lardy. Many inefficient and unprofitable state-owned companies will have to be streamlined or closed. In 1997 they employed 40 million workers, representing 65 percent of the jobs in the industrial sector, according to economist Harry Broadman of the World Bank. Unemployment and labor unrest are rising.

Joining the WTO should, on paper, lead to more imports, which would worsen unemployment and the losses of state-owned companies. This leads some observers (like Mann) to suspect that China will selectively evade its WTO obligations. The AFL-CIO --an opponent of PNTR --fears an alliance between China and multinational companies: the companies invest in China as an export platform; in turn, growth of export industries minimizes unemployment. Starting in 1994 China's trade surpluses have risen sharply. From 1993 to 1999, foreign exchange reserves have ballooned from $21 billion to $155 billion.

None of this matters much while the U.S. economic boom continues. But should it falter, the immense U.S. trade deficit with China ($69 billion in 1999) could easily become an inflammatory issue. Hardly anyone thinks that the WTO agreement will quickly reduce the deficit, because U.S. exports ($13 billion in 1999) are so small. They could grow rapidly and still fall far short of imports. The larger tension involves expanding trade with a country whose values and interests differ so much from ours. Potential conflicts abound. The kind of social transformation that Americans imagine will take (at best) decades. The Chinese can drink Coke and use the Internet without becoming American or even liking Americans.

In the cold war, our trading and security alliances overlapped. We generally traded with democracies and military partners. This is no longer true. Coexisting with China is a great imperative of the 21st century. But American foreign policy must enjoy public understanding. In building support today for a sound policy, the White House has made it seem better than it is --and may be inviting a backlash tomorrow.