In light of the rocky relationship between the U.S. and communist China, perhaps we should add ‘free trade’ to the list of dangerous foreign policy bywords.
Throughout the latter half of the 20th century, America has faced a growing economic dependency on the People’s Republic of China (PRC) reinforced by our reticence to prosecute trade agreement violations by the communist government there. Although Japan, not the PRC, is the largest holder of American bonds, the latter nation retains considerable influence over the American economy, holding $407.4 billion in U.S. bonds as of May 2007.
Perhaps because of this financial interdependence, as well a potential 1.3 billion-consumer market for U.S. exports, the American government has until recently tolerated considerable abuses by the PRC, including currency manipulation, intellectual property theft, lax safety standards, and inadequate domestic labor law enforcement. The PRC did agree in 2001 to increase its U.S. wheat imports to 8.5 million metric tons annually, and to reduce the tariffs applied to wheat imports.
Six years later, the U.S. wheat imports the PRC buys come to less than 10% of the agreed-upon amount, and have actually fallen below 2002 import levels. Similarly, America committed to limit tariffs on Chinese car imports to 2.5% while allowing the PRC to impose a 25% tariff on American cars.
Some free-trade proponents argue that American overregulation has decreased American competitiveness, leading to the outsourcing of American manufacturing. The solution: eliminate the unnecessary bureaucracy and waste that holds back the economy.
Senator Jim DeMint, R-S.C., characterized the U.S. tax code and other regulatory requirements as a “giant sucking sound,” draining away our American economic vitality. Sen. DeMint sits on the Senate Commerce Committee Subcommittee on Interstate Commerce, Trade and Tourism.
While American bureaucratic waste may contribute to the competitive disadvantage with the PRC, the communist government has perpetuated policies which support its domestic industries at America’s expense. Dr. Peter Navarro, author of The Coming China Wars: Where They Will Be Fought, How They Can Be Won, estimates that the PRC’s illegal export subsidies account for about 17% of China’s trade advantage. He also asserts that the PRC’s unenforced labor standards, coupled with migration laws, may account for another 40% of China’s comparative advantage.
Despite these abuses, government officials still optimistically predict a mutually beneficial trade relationship with the PRC. David Spooner, Assistant Secretary of Commerce for Import Administration, told the Senate subcommittee that the PRC offers a potential $1.3 billion consumer market, and that American exports to the PRC increased from $32 billion in 2005 to $55 billion in 2006, exceeding U.S. exports to India, Brazil, and France combined.
The U.S. government currently has four open World Trade Order (WTO) cases against the PRC. The first, opened in January 2006, challenges China’s discriminatory auto-part import practices. In the latest, filed in February 2007, the American government moved to challenge China’s import and export subsidies.This just in: the U. S. filed another complaint in April.
Spooner hopes that the U.S.-China Strategic Economic Dialogues (SED) will successfully convince both the Chinese and American governments to undertake long term structural changes. In his July 25 testimony, he claimed that American and China both are committed to “liberalize air services rights, undertake further financial sector reforms, work to foster energy security, and take additional steps to protect the government and strengthen the rule of law.” However, given China’s current and past abuses, it remains to be seen whether the Chinese government will implement these reforms.
Bethany Stotts is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.