Will China Play by the Rules?
This week in Washington, the secretaries of the Treasury, Agriculture, Commerce and Labor departments, as well as the U.S. trade representative and EPA administrator, will sit across the table from their Chinese counterparts. For two days, these leaders will politely exchange views, smile for photos, shake hands and then adjourn the meeting. Promises of cooperation will be made. Both sides will talk about what a “win-win” our economic relationship is. That’s the Strategic Economic Dialogue in a nutshell.
First you’ve heard of it? Not surprising. China and the United States have a large, unwieldy and seemingly unmanageable economic relationship—one that is difficult to summarize in 30 seconds or less, which may explain why it normally doesn’t make the nightly news, or why none of the leading presidential candidates say much about China right now.
The choices about our economic relationship with China often are presented as absolutes: you are an enlightened “free trader” who wants to engage China and provide Americans with cheap products, or you are a jingoistic “protectionist” who seeks to shore up unproductive industries and simply bash away. These labels are neither helpful nor accurate. In fact, they needlessly cloud the debate on China. Our economic relationship with China no longer is a matter of grand philosophy; it now is based on cold, hard facts.
The largest single source of our trade woes is China. China’s trade surplus was responsible for a staggering 42 percent of the United States’ total, non-oil trade deficit last year. Our trade deficit with China skyrocketed for the sixth consecutive year in 2006, reaching a record high of $235 billion. (By contrast, the recent deal struck on the Panama and Peru free trade agreements will affect $10 billion in trade—less than two weeks worth of U.S.-China trade.)
A new study by the Economic Policy Institute, “Costly Trade with China,” concludes that the trade deficit with China has displaced 1.8 million American jobs since China joined the World Trade Organization in 2001. Every state and the District of Columbia lost jobs. Nearly three-quarters of those jobs were in manufacturing industries. Attention presidential candidates: New Hampshire lost a larger share of its employment—more than 2 percent—than any other state. California lost an estimated 269,300 jobs. The study is important because it is one of the few that looks at the entire trade picture.
When China became a member of the WTO, proponents argued it would herald in a new age of opportunity and expand market opportunities for American companies. But American companies and workers have been adversely affected by a Chinese government policy that simply needs to be described for what it is: cheating. Subsidies, dumping, currency manipulation, violation of labor rights and lax or nonexistent environmental enforcement are just some of the illegal practices that must be addressed.
After years of prevaricating, the Commerce Department has correctly allowed countervailing duty laws to be applied to non-market economies such as China, which may lead to some relief for American paper producers who have been devastated by illegal subsidies. The administration has initiated cases at the WTO on some Chinese subsidies and its theft of some intellectual property. These are important first steps, but the size and scope of the issues demonstrates the urgent need to do more than this.
Some critics argue, however, that enforcing our trade laws is shortsighted in this era of globalization and that the end results of these laws are limits on consumer choice and thus higher prices. When China’s illegal practices are challenged, editorial pages sound alarm bells about escalation into a “trade war” whose victims will be American consumers.