Trade with China
May 24, 2000

China-U.S. trading relations -- abnormal no more?

For the last 20 years, the U.S. has undergone an annual ritual--approving normal trading relations with China . The occasion would give Congress the opportunity to denounce China's dismal record on human rights; the Chinese government would retaliate by threatening to restrict access for American corporations to the growing Chinese market.

This largely ineffectual practice has now come to an end. On May 24, Congress voted to grant permanent normal trading relations (PNTR) status to China thereby ending the annual exchange of blustery rhetoric between the two countries.

The vote was very close. The move to approve PNTR was supported in the main by American businesses who relished the prospect of increased exports. Organized labor, fearing a migration of jobs to low-wage China , provided the opposition. Both parties lobbied fiercely, and the outcome hung in the balance. President Clinton, who found himself aligned with his Republican foes in Congress on the matter, pulled out all the stops to garner support from wavering Democrats, even resorting to inviting the redoubtable Fed chief Alan Greenspan to the White House to state publicly that granting PNTR status to China was a good thing.

Discussions of the normal trading relations status, formerly the most-favored-nation status, are rife with misunderstanding. Granting such status to China merely means that the U.S. accords the same treatment to imports from China that it does to those from all its other trading partners. Chinese goods are now subject to the same tariffs and quotas that, say, Japanese or European goods are. No more, no less. And, in fact, with China = s membership to the World Trade Organization (WTO) all but assured, the U.S. is now enjoined to grant China such status: If the U.S. were to unilaterally impose higher tariffs on Chinese goods, WTO rules would permit China to retaliate against U.S. companies.

China's membership in the world trading community is a welcome development. Its market is one of the biggest in the world, and thanks to WTO requirements, will now be more open than ever. As China's trade barriers fall sharply, U.S. exports to the country will rise, leading to increased employment growth in the export sector here. Furthermore, with a more hospitable climate for foreign investment beckoning invitingly, U.S. multinationals are likely to set up operations in China , along with counterparts from Europe and Japan .

The influx of foreign firms, and the increased interactions between China and the rest of the world, are likely to have the salutary effect of fostering democratic principles in China . Perhaps more than all the hectoring by members of Congress, that is what may lead to an improved climate for human rights in the country.