Why Let China Win the War With America?

PHILADELPHIA — One by one, the old arguments for continuing China’s most-favored-nation trading status are crumbling. Few still seriously argue, as both the Clinton administration and major U.S. corporations once constantly did, that trading with China will encourage the Beijing regime to ease up its political repression. In fact, the opposite has occurred. The argument, made since 1990, that assuring China easy access to the U.S. market will, in turn, lead to growing U.S. exports to the great China market lies in ruins. In reality, U.S. exports to China have been stagnating since 1995 because the Chinese regime is strengthening its trade barriers against U.S. products as part of its increasingly nationalistic economic strategy.

Instead, in its attempt to defend China’s continued access to the open U.S. market, the U.S. foreign-policy establishment has now retreated to the misleading mantra “Let’s not make an enemy out of China.” The mantra and its implicit but clear subtext--”If we’re nice to China, then China will be nice to us”--are glib formulations that appeal to the best instincts in the American character. Americans of good will would prefer to give China the benefit of the doubt and forget the old lesson that being nice to totalitarian or authoritarian regimes, particularly those with transparently anti-American agendas, has rarely if ever proved successful.

What’s worse, the don’t-make-an-enemy mantra amounts to a slogan that turns reality on its head. For it is China--or, more precisely, the Chinese leadership--that already views the United States as its long-term strategic adversary. This has been true since late 1993, when anti-American elements in the Beijing political and military leadership prevailed over Deng Xiaoping.

The documentary evidence is over whelming: editorials in leading official Chinese newspapers condemning U.S. “hegemony,” a code word long used to describe China’s onetime enemy, the Soviet Union; books and articles by Chinese military officers, both openly and secretly published, identifying the United States as China’s foe; a drumbeat of anti-American propaganda in the official media aimed at the general Chinese population, and growing attacks by Chinese officials on the U.S. military presence in Asia, the key factor standing in the way of China’s eventual domination of the region.

The actions of China’s leaders are consistent with their words. In the past year, China has accelerated its military buildup, already the world’s largest and most rapid, with a focus on building air- and naval-warfare capabilities transparently aimed at countering U.S. military forces in Asia. The fact that China, in 1994, launched a major political offensive--part public, part hidden--aimed at increasing its influence in Washington is widely accepted, however much analysts might differ on the details of China’s agenda.

Most relevant to the current MFN debate is that China already effectively treats the United States as its enemy on the trade front as well. Few Americans recognize that we are in a trade war, unilaterally launched by China and that, so far, we are the losers. U.S.-China trade statistics make that painfully clear. After racking up a record trade surplus of $40 billion with the United States in 1996, China’s trade surplus with us this year is projected to exceed $50 billion. Some lobbyists and analysts attempt to explain this expanding deficit as largely a reflection of distortions in U.S. trade statistics and the shifting of labor-intensive production to the mainland from such developing economies as Taiwan’s. But a hard-headed analysis of Chinese economic and trade policies reveals another explanation: China has developed a labyrinth of tariff and nontariff barriers against U.S. goods and services that would make the Japanese blush.

As a result, relatively few U.S. exporters are penetrating the China market. The exceptions are producers of raw commodities and, at the other end of the economic spectrum, a few large U.S. corporations that are selling to China the high technology it needs to achieve its goal of becoming a great economic and military power. But, overall, U.S. exports to China are puny. Annually, we export more to Australia or to Belgium than we do to China. In the first four months of this year, U.S. exports to China actually declined, while China’s exports to the United States continued to soar.

The most striking indicator of the lopsided trading relationship is that, for approximately every dollar’s worth of exports we shipped to China in 1996, China sent five dollars’ worth of exports to the United States. For the United States, that’s an unfavorable ratio of 5:1. The comparable ratio with ostensibly protectionist Japan was only 1 1/2:1.

Faced with such aggressive economic nationalism from China, it’s little wonder that the expanding coalition in Washington opposed to China’s MFN trading status is increasingly dominated by forces with a barely hidden protectionist agenda. When imports from China first became a political issue after the Tiananmen Square massacre in 1989, liberal human-rights advocates urged Congress to make China’s MFN status conditional on Beijing’s easing up on political repression. But today’s anti-MFN coalition effectively calls for massive protectionism against Chinese imports, wrapped in the righteous rhetoric of punishing Beijing for its continuing suppression of human rights as well as political freedom. Few opponents of MFN still seem to believe that imposing a tariff wall against imports from China will help improve conditions for such victims of the Beijing regime as political dissidents, Tibetans, Christians or women with unauthorized pregnancies. In any case, merely lifting China’s MFN status and imposing high tariffs on Chinese imports would do nothing to address the key trade issue, which is China’s systematic exclusion of most U.S. products and services.

Neither the Clinton administration nor its allies in the business community and the foreign-policy establishment have a viable strategy for tackling China’s trade barriers. Until recently, the administration seemed optimistic that it could get Beijing to promise to undertake a series of radical, market-opening economic reforms in return for Chinese membership in the World Trade Organization. But that prospect has rapidly faded, largely because it has become clear that Beijing’s leadership can’t deliver reforms that would radically transform Chinese society and threaten China’s ruling classes, including the top leaders themselves. It would be just as unproductive to revert to traditional market-opening techniques--bilaterally negotiating reductions, one by one, of the thousands of official and unofficial Chinese trade barriers that exist at every level of the Chinese economy.

Even if such negotiations sometimes succeeded, President Jiang Zemin has already shown us what would happen. After he announced sweeping Chinese tariff reductions in early 1996, he allowed China’s economic bureaucrats to impose nontariff barriers in their place. As a result, U.S. exports to China last year hardly increased even while the Chinese economy grew at 10%.

But doing nothing about Chinese protectionism is unacceptable, if only because running a $50-billion trade deficit with a potential enemy is unacceptable.

The only remaining practical alternative is managed trade, telling Beijing that the United States will no longer tolerate an unfavorable trade ratio of 5-1. Instead, Washington should demand that Beijing take whatever steps are necessary to move that ratio to, say, 5-2 within two years and 5-3 within four years. If there isn’t steady progress, the United States must be willing to impose high tariffs on Chinese goods until there is. We must make it clear that we’re ready to fight the trade war that China began. It’s a war we would win. Up to one-third of China’s exports now end up in the United States while only 2% of U.S. exports go to China. Which country should fear a trade war?

A managed-trade agreement with China, besides generating exports, jobs and profits for Americans, would yield more political liberalization in China than the crude protectionism proffered by some political leaders. By crimping export-led growth and releasing a flood of imports into China, it would force the Chinese regime to retreat from its statist, mercantilist economic strategy and resume market reforms. Both would reduce the regime’s powers over the population. What’s more, a wave of imports would also rapidly increase China’s integration into the world economy, yet another check on the regime’s power.

All this will strike the early, idealistic campaigners for improved human rights in China as far too little. And they will be right. But a little is better than nothing. And that is what the other strategies to promote human rights have yielded to date. What’s more, a managed-trade agreement would also advance the concrete economic interests of the United States, a factor that has been largely neglected in Washington’s current China debate.

A good first step in this direction would be for Congress to vote to suspend MFN but to couple it with legislation giving the president the authority to delay the imposition of punitive tariffs. Most important, the Congress should direct the president to use his new powers as a lever to force China to begin buying more U.S. goods and services.