China and the Level Playing Field

Sanjay Paul

Patriot News
November 2003

In an op-ed piece in the Nov. 5th Wall Street Journal dealing with U.S.-China trade, Commerce Secretary Don Evans asserted that China was not playing by the rules. If China wished to retain access to the U.S. market, he warned, trade between the two countries would have to occur on a level playing field.

In fact, Evans used the phrase “level playing field” seven times, and apparently fearing that this wasn’t enough, in his eighth usage, referred to the need for a genuinely level playing field.

When used in the context of international trade, the phrase is typically invoked to accuse a trading partner of benefiting from unfair trade practices. The writer first seeks to establish his pro-free trade credentials – “I am a free trader,” he begins earnestly. But then, quickly cataloguing the offending country’s various trading sins, he claims that the preponderance of evidence suggesting an uneven playing field leaves him no option but to qualify his free trade stance. “We must have fair trade,” he pronounces, and moves on to the subject of a suitable mechanism by which such can be attained. This typically involves adopting anti-free trade practices of one’s own – to wit, tariffs on imports, subsidies to exporters, government procurement rules favoring domestic firms. “This is not protectionism,” he will hasten to add – for the p-word bespeaks a certain insularity, and even in today’s world of tarnished globalization, not many would like to be seen as insular or provincial.

Evans took a more subtle approach. The playing field would become level, he indicated, if China dismantled its trade barriers, ended state subsidies, and sped up the transition to a market economy. In the absence of such measures, he warned, the U.S. government would be forced to retaliate, noting that an impatient Congress had already started to consider legislation designed to punish China for running up large trade surpluses with the U.S.

Somewhat surprisingly, Evans did not call upon China to let its currency float. In recent weeks, China has been accused of stealing U.S. manufacturing jobs by adhering unwaveringly to its exchange rate policy of fixing the yuan’s value (with respect to the dollar) at an artificially depressed level. This policy, argue China’s critics, renders U.S. goods more expensive and unable to compete in the global market.

If only a country could attain prosperity this easily. A fixed exchange rate is all you need! History is littered with instances of countries doggedly maintaining fixed exchange rates but failing to establish competitive manufacturing industries. The reasons for China’s export success, and the decline of manufacturing employment in the U.S. (a long-term phenomenon, by the way), are many and varied – and to think that merely causing the yuan to float (in the hope it will become stronger – and the dollar weaker) will address the problem borders on the fanciful.

Evans, to his credit, did not fall into this trap. In the days leading up to President Bush’s recent trip to the Far East, the Administration had publicly called upon China to reconsider its fixed-yuan policy. This was done largely to appease the growing number of critics asking the U.S. government to do something – anything! – to stanch the loss of manufacturing jobs. But during his Asia visit, Mr. Bush discovered that countries in the region showed little enthusiasm for his position, and he has since quietly dropped it.

The U.S.-China trade imbalance, however, will continue to be a thorny issue. But China’s presence in the global economy grows unmistakably – indeed, were it not for a rapidly growing China, the recent global economic slowdown would have been more severe.

Evans attempted to soften his criticism of this increasingly formidable country, noting that “a democratic country simply cannot sustain a one-sided trading relationship...” Even the Chinese government might have been taken aback at the suggestion that they were democratic.

Back to Articles