China's economic rise and U.S. trade policy debate

Rise of China

Much in international relations has changed over the past two decades beginning with the dissolution of the Soviet bloc and the disintegration of the Soviet Union and continuing now with the slow growth of a more open market in China. For decades, both the U.S.S.R. And China were seen as enemies of the West as both were Communist in their orientation, though the two Communist powers did not always g along themselves, a fact which only made them more threatening to much of the rest of the world.. with the dissolution of the Soviet Union, China became the major Communist power in the world, far more of a threat than Cuba, yet treated quite differently than that smaller country. Where America has kept Cuba outside the world's markets as much as possible and has continued to treat any contact with Cuba as a threat to national security, the U.S. has encouraged investment and other contacts with China, aiding in the economic development of that huge country on the theory that economic development and contact with the outside world would lead inevitably to improved relations and to a more capitalist system in China. Some have seen the economic rise of China not as an opportunity but as a threat, however, viewing anything that makes China stronger as also making the West weaker. The issue is whether this can be deemed a real threat or only an unfounded fear.

The Rise of China

In the United States, efforts to bring China more into the world market has included an argument over whether or not to grant most favored nations status to the country. Despite its name, the most favored nation (MFN) clause of the General Agreement on Tariffs and Trade (GATT) does not mean that any one nation receives preference over another nation with regard to trade. Instead, members of the GATT are committed that products originating in one nation will receive the same treatment as products originating in any other nation. Discrimination and preferences are prohibited. However, Article I, which contains the MFN clause, also provides some exceptions to that clause, including customs unions and free trade areas. In general, however, the goal of MFN status is to give equal treatment to all countries and their goods and to prohibit any one nation from being favored over any other nation. In this sense, all MFN nations are "most favored."

The United States grants MFN status to nearly all of its trading partners. In 1997, only seven nations did not enjoy MFN status. However, even those nations which are granted MFN status may not have unconditional status. Waivers have been obtained by the president for a number of countries, including China, which otherwise would not be eligible for MFN under U.S. rules. Such countries can enter into a bilateral trade agreement with the United States, or may be determined to be in compliance with the Jackson-Vanik amendment of the 1974 Trade Act (this amendment has implications for free emigration). It is under these conditions that China has been granted MFN status, but because China's status is not unconditional, it is subject to Congressional approval based on the president's recommendation.

The issue of MFN status for countries is both political and economic. By reducing tariffs for Chinese goods, as an example, American companies which use those goods in their own products can purchase them at prices which are well below what they would have to pay if the MFN status were not in place. However, critics of MFN status to China point out that China has no incentive to open its market to American goods, and that the U.S. trade deficit topped more than $60 billion in 1998.

Until 1978, China had a controlled, centralized, Soviet-style economy, and it then began to try to develop a more market-oriented system, one which still operates within a political framework of strict Communist control, though the economic influence of non-state organizations and individual citizens has been increasing. China wants to become a full member in the world trading community through membership in the World Trade Organization in particular. In recent years, the People's Republic of China (PRC) government has sought membership in GATT (General Agreement on Tariff and Trade) and its successor, the World Trade Organization (WTO). The PRC has made many concessions concerning economic liberalization to gain this objective.

In the United States, trade with China would become a primary issue, with potential membership in the WTO seen as necessary by China though opposed by some other countries. The United States Congress has often opposed giving Chine MFN (most favored nation) status because of human rights abuses. Dramatic media exposes with a former prisoner posing as a Chinese-American investor sparked public outrage and demands for tough sanctions against Chinese exports to the United States in the early-1990s. Another sticking point has been U.S. support for Taiwan, what is left of the old republican government exiled to the island nation east of China, with both wanting a reunited China under their particular rule. The United States has never recognized Taiwan as a separate country, but at the same time, any threat to Taiwan form mainland China has been met with strong opposition and even the threat of military action. Recently China warned that it would not allow Taiwan to take a different course from mainland China and implied that it would soon be seeking to take control of the island once more. To Americans who continue to view the PRC as a hated enemy, however, any action, however drastic, is justified to pressure the PRC to leave Taiwan alone. In reality, however, Taiwan is a part of China. The presence of a separate state on the island is evidence of a civil war that has yet to be completed.

China: Opportunity or Threat?

In some sense, the answer to this question might be that China could be both. China is certainly an opportunity for those companies that can get into that market and make a good deal for themselves, and China's rise might be a good thing for world trade in many ways. China could still pose a threat. It could pose an economic threat if its huge population became the sort of consumer base some hope it will be. When the idea of China as a threat is raised, though, the threat is not simply economic but political.

Emma V. Broomfield says that the threat could be ideological, economic, and strategic, though any threat would be based on the growing economic power China has been developing. As she notes,

Since economic reforms were instituted in 1979, China's economy has liberalized and expanded and its leadership has striven to modernize its army in an effort to prove to the world that China is not just a third world developing country. Some policymakers and academics have interpreted this rise as a serious threat, directed specifically against the United States, its friends, and the Western way of life.

The belief on the part of some is that China will gain enough economic strength to threaten the peace and security of the West and specifically to challenge the United States on issues like Taiwan. They also see a threat to American security as China infiltrates U.S. capital markets. In addition, "they point to China's poor record on proliferation, its weapons sales to many of America's adversaries, and its largely successful attempts to gain dual use technology and elicit military secrets through espionage as undeniable threats to American national security."

Vincent Cable and Peter Ferdinand note the conflict presented by the more open economic policies of China, at least as compared with the past, pointing out the economic opportunities seen by many companies while also asking if an improved economy for china constitutes a threat for the future. They note that the economic power of China is a function of both its size and its growth, and the change has created a new interest in Chinese markets: "While China remained a closed economy, the size and living standards of its domestic economy were of largely academic interest to the rest of the world." The authors state that prosperity for China will create both problems and opportunities, with the problems including economic competition, increased pollution, and the development of an economic platform for military actions. The authors recommend caution because the opportunities being held out today could be taken away tomorrow if China shifts back to more inward-looking forms of development, as has happened in soe economics in the past. Political uncertainties about China are especially troubling, and the human rights abuses revealed from time to time show that the ruling regime is not as secure as it makes it appear.

Gerald Segal recognizes that the huge population in China is a tempting target and that this makes the Chinese economy seem important to the world, but he also finds that weaknesses in the economies throughout East Asia makes this market less stable and less certain than some assume. China is most important, he says, to other economies in East Asia, though investors in the west are looking to China as if it will be a major boon to their fortunes. Segal also points out that China is a second-rate military power and accounts for only 4.5% of global defense spending, while the United States makes up 33.9%: "Beijing clearly is a serious menace to Taiwan, but even Taiwanese defense planners do not believe China can successfully invade." Segal calls for the United States and others in the West to stop viewing China as a power commensurate with its size and to see China more as another Brazil or India.

Various other writers have commented on Segal's position. Lawrence Freeman agrees with Segal about China today, but he also believes that occupies a strategic position that it could improve with economic strength. Samuel Kim also says that China is not likely to exercise global leadership and will only be powerful in the Asia-Pacific region. Some others note that the role of China has improved greatly since Segal wrote his analysis and that this is related to economic improvements. China is still not a major market but is an important production site for exports to the West. Barry Buzan says that internal development will determine whether China becomes stronge rand whether it becomes a malign force: "Buzan insists that for China to become a co-operative member of the international community, it must address key social issues generated by market reform and party dictatorship (income inequality, corruption, crime, environmental protection, etc.)."

Mark Helprin note the traditional course for China when he writes,

By geography, history, and tradition, China has been remarkably self- contained. It seems to have an artificial horizon that allows it to be content within its own sphere and to internalize its upheavals rather than export them. It rejects what it calls "power politics," and shuns alliances. Of the almost 2.5 million soldiers of the world's largest army, it has detailed only 32 for international peacekeeping duties, fewer than provided by Estonia. After going to war in Korea, India, and Vietnam, it simply withdrew, as if it found existence beyond its borders painful.

However, he also finds reason to ask whether this situation will persist or whether China might have or develop larger ambitions that would be a threat to the West.

Conclusion

Jian Ying analyzes the issue as well and notes some of the concerns:

China's rise worries some observers and policy-makers. Various 'China threat' theories have emerged, such as environmental threat, energy threat and food threat. The most worrisome, however, are China's 'military threat' and 'economic threat.' Of the two, the 'economic threat' is more controversial, mainly because it is relatively less value-oriented. While some claim that unfair Chinese competition is annihilating U.S. manufacturing industry and the Chinese are 'stealing American jobs,' others argue that this assertion 'is almost entirely false.' It is noted that to say China is an economic threat to the United States is similar to labeling Japan a big threat in the 1980s.

The threat is thus more a perception than a reality at the present time, and it is also impossible to see what will happen in the next few years that might shift this perception one way or the other. In that sense, any threat cannot be avoided but only observed until the West is more certain that there really is a threat.