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(05/14/00 - Morici) Should The U.S. Normalize Trade Relations With China?

HEADLINE: SHOULD THE U.S. NORMALIZE TRADE RELATIONS WITH CHINA ? Granting Normal Relations To China Helps U.S. Exports Pro
Peter Morici
Knight Ridder Newspapers
673 words
14 May 2000
The Charleston Gazette
(Copyright 2000)

For 50 years, China has been trying to join the community of nations. Rejecting normal trade would be seen in Beijing as a slap in the face. Moreover, it would be a historical blunder to miss this chance of further integrating China into the global economy.

WASHINGTON - Not surprisingly, particularly in an election year, political considerations have obscured the pending congressional vote to grant China permanent normal trade relations. </FD:"Lead"> Furthermore, many Americans are confused about the heart of the matter: The question is not whether China should be a member of the World Trade Organization, but if American companies and their workers will have the same market access in China as our competitors.

The economics of normal trade relations are perfectly clear: Opening China's vast market to U.S. companies will benefit America's businesses and consumers. Rejecting it will clearly damage the prospects for U.S. exporters, and undermine the competitiveness of American firms operating in China.

Economists estimate that normalizing trade relations will increase U.S. exports by $10 billion over the next decade, and total U.S. output will rise by $19 billion during this period. Without it, China has threatened to withhold the market access concessions negotiated with the United States.

A Hobbesian dilemma will result for U.S. firms: Facing a structural disadvantage in China vis-a-vis Asian and European competitors, American companies will favor investment in China over exporting from the United States.

The annual trade misadventure, which creates uncertainty for U.S. businesses and investors, is already hurting American manufacturers and their workers.

From 1990 to 1997, rest-of-world exports to China grew 22 percent faster each year than U.S. exports to China. From 1990 to 1998, the United States exported $61 billion less to China than Japan did, and $43 billion less than the European Union.

The lost export opportunities are costly for American firms, and it is unfair to ask U.S. companies to serve as political martyrs while their competitors get a stronghold in the Chinese market. But, frankly, normalizing trade relations will not affect the market-driven trend of rising labor-intensive imports to the United States.

As economies mature, resources shift to more productive and efficient activities. In the long run, normal trade ties to China will greatly expand markets for U.S. agricultural products, durable goods and high-tech services. Consequently, it will raise the incomes of family farmers and working Americans.

Critics of normalizing trade are fond of reminding Americans about the rising U.S. trade deficit with China. However, a significant portion of the deficit with China can be attributed to large retailers that buy from China to reduce costs for apparel, shoes, toys and similar products.

Furthermore, rising imports from China reflect shifts in comparative advantage among Asian countries: it is estimated that half of China's growing share of U.S. imports came at the expense of Taiwan and Korea.

Real concern over the U.S. trade gap with China should manifest in enthusiastic support for normalization. By forcing China to abide by the binding legal authority and market-based principles of the WTO, it will provide U.S. exporters with greater access to the Chinese market.

Recently, economic development has led to a rising standard of living for the average Chinese, and Americans should celebrate and promote this progress.

Like it or not, China will become a member of the WTO. The dispute is over the terms of China's membership. Will the United States honor its obligation as a member of the WTO to extend normal trade to all fellow members? The litmus test for it should be based on economics, and by this benchmark, Congress should permanently normalize trade with China.

Morici is senior fellow at the Economic Strategy Institute, a nonpartisan think tank that explores and comments on public policy issues.

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