China’s agreement with the United States on joining the WTO caused some editorial writers and labor leaders to work themselves into a frenzy of opposition.
Letting China in the WTO forces U.S. workers to compete with slave labor some argue. Admitting China to this international organization gives unmerited support to a harsh dictatorial regime complain others.
Relax everybody. This agreement largely confirms an existing status quo.
It will have some positive effects on the U.S. economy, but they will be so small that picking them out of broader trends will be difficult. It is a political coup for the Chinese government as a whole, but one that represents a victory for the more moderate elements within that government and a defeat for its intransigent old Maoists.
And while the immediate economic effects will be deep and wrenching for the Chinese, the longer-run effects tend toward increasing democratization of the Chinese economy.
It’s useful to look at the effects of NAFTA. Remember Ross Perot’s prediction of a “giant sucking sound” as U.S. jobs all drained into low-wage Mexico? The U.S. economy added a couple of million jobs since NAFTA went into effect in1994, while unemployment has fallen to near record levels and U.S. wages have risen at the strongest rate in two decades.
I’m not claiming NAFTA is responsible for the strength of the U.S. economy since 1994. Other factors, such as new technology and increased productivity deserve the most credit. But NAFTA certainly hasn’t hurt U.S. workers in the ways critics had predicted.
We commonly hear of this U.S. plant being closed or that U.S. firm moving its operations to Mexico as a result of NAFTA. But on closer examination, most of these actions are in response to factors or policies that were in effect well before NAFTA was implemented.
Economic theory argues that when two nations agree to reduce trade barriers, smaller countries are generally affected more than large ones. (The U.S. economy produces 25 times as much as the Mexican economy.)
And countries that had high trade barriers will be affected more than those with low ones. (Before NAFTA, Mexico had very high tariffs on most imports. U.S. tariffs on most imports from Mexico were low, averaging less than 4 percent of value.)
In other words, NAFTA didn’t change much for U.S. consumers or U.S. businesses. Before 1994 it was hard to find an economist—as opposed to a politician—who thought that NAFTA would affect the U.S. economy in a significant way. The economists were right.
China has 13 times as many people as Mexico, but the dollar volume of U.S. trade with China is only half that of our trade with Mexico. True, “Made in China” labels are prominent on most toys and many housewares.
True, China’s entry into the WTO combined with the ongoing phase-out of something called the Multi-Fibers Arrangement probably will increase U.S. textile and clothing imports from China. But most of that increase will be diverted from other Asian nations and not from U.S. mills.
But as with Mexico before NAFTA, U.S. barriers against Chinese imports are already largely gone. We extended “most-favored nation” status (now “normal trade relations”) to China more than 15 years ago. That much-misunderstood phrase means we agreed to treat China as if it were a member of GATT/WTO even though it was not. Most Chinese exports to the U.S. have faced the same low barriers as those of virtually every other nation in the world. Formally admitting China to the organization changes very little.
That leaves the question of whether we are helping to prop up a brutal, dictatorial regime. Our efforts to maintain good relations with China certainly contrast with the hard line we have taken against Cuba, North Korea, Iran and Iraq.
It comes down to whether one thinks the carrot or the stick is more effective in motivating change.
China is a huge nation with a long-established culture and political tradition. I think we are much more likely to see reform take place in China if it is allowed to interact with other nations than if it is isolated.
That is a personal judgement based on my evaluation of history rather than on some principle of economic theory. It’s also the conclusion reached by every U.S. administration in the last 30 years.
I think the same is true for Cuba and North Korea, but the fact that domestic politics has overruled reason in these instances does not mean it should do so with China.
The whole issue is overblown.
Chinese entry into the WTO is an incremental step that should have mildly positive effects on the U.S. economy. It binds the Chinese government more firmly to the path of market reform and integration. But for the economic well-being of U.S. society or the great path of Chinese history, it pales in comparison to many other forces.
© 1999 Edward Lotterman
Chanarambie Consulting, Inc.