China’s Mythic Market

By Alan Tonelson
The New York Times, 18 May 2000

Trade agreements cannot bring widespread benefits to the United States if they rest on false portrayals of our trade partners and of American business objectives. Americans learned that the hard way after the North American Free Trade Agreement, when Mexico turned out to be less than the rapidly prospering paragon of good government touted by President Clinton and his allies in big business. Today, the same coalition is pushing for permanent normal trade with China, with the House Ways and Means Committee approving the proposal yesterday.

The proponents would like us to believe that China is a booming market for American-made products. But although our exports of goods to China rose significantly during most of the 1990’s, they grew no faster than such exports to the world as a whole, and China still accounts for less than 2 percent of the total. In 1999, these sales to China actually fell by 8 percent. One-sixth of the sales to China, moreover, are of a single product: large commercial jets.

Chinese trade barriers are to blame, but so is a weakening Chinese economy. The growth rate has slowed by at least half in recent years. Even the official Chinese press pegs unemployment at 17 percent, and with real wages down since the mid-1990’s, Chinese who have jobs are hoarding their earnings, not buying consumer goods.

The Web sites of American multinational corporations, meanwhile, barely mention selling from their American-based factories to China — which might benefit American workers. Instead, they gush about turning the People’s Republic into a low-wage production base. Procter & Gamble, Motorola and Westinghouse state openly on their sites that they plan to substitute Chinese parts and materials steadily for the American-made ones they still send to China to put into finished goods. The predictable result is loss of high-wage American manufacturing jobs.

Meanwhile, companies like General Electric, Kodak, Dow Chemical and Ingersoll-Rand have indicated that they will displace American jobs by supplying the domestic market and markets in other countries with exports from their Chinese factories.

Nor are American companies’ China operations likely to do much to expand free markets. Most deals are in aerospace, telecommunications, utilities and transport, which in China are dominated by government agencies and state-owned companies. Motorola even says that its China business strategy “dovetails with the Chinese government’s strategy for upgrading state-owned enterprises.”

Increasingly, according to trade statistics, China is also not a primitive giant, producing labor-intensive goods that Americans should no longer even want to make. Between 1992 and 1999, high-tech products as a share of China’s exports to the United States more than tripled, to 14.5 percent; they rose more than 32 percent just last year. In contrast, American high-tech products rose only from 34.5 percent to 35.9 percent of our total exports to China. And they fell 18 percent in absolute terms in 1999. These figures do not even count our steadily rising imports of industrial machinery and other capital-intensive goods from China.

Further, thanks to planned investments by companies like Cisco, 3Com, Lucent, Microsoft, United Technologies, Motorola and Texas Instruments, if Congress approves normal trade with China, expect American and world markets to be flooded with ever higher-tech Chinese goods: broadband routers, telecommunications switches, semiconductors, servers, applications software and aerospace engine parts.

Perhaps the most frequently heard argument in favor of permanent normal trade relations with China is that without it, we will lose the China business to foreign competitors. That might be a worry if China consumed most of what it imports. But studies by the New York Federal Reserve Bank and others show that most Chinese imports are intermediate goods that are assembled into finished products in China and then sent to foreign markets. Some 40 percent of China’s exports are sold to the United States.

This means that the success of investments in China by American companies and their competitors alike depends heavily on exporting to the United States. Without easy access to their largest market, the projects in China would nosedive in value. The keys to keeping them valuable are permanent normal trade status and admission of China into the World Trade Organization, whose cumbersome procedures can keep the American market wide open.

Proponents of normal trade hope to obscure these realities with toothless amendments to the deal. But the public’s perception of normal trade with China remains on the mark: a possible bonanza for management and shareholders, at least in the short term, and nothing but trouble for workers.

Alan Tonelson, research fellow at the United States Business and Industry Council Educational Foundation, is author of the forthcoming “The Race to the Bottom.”