Copyright 2000 The National Journal, Inc.
The National Journal
May 20, 2000
SECTION: ECONOMICS; Pg. 1581; Vol. 32, No. 21
LENGTH: 1558 words
HEADLINE:
Free Trade And Free China: Good Causes, Muddled Champions
BYLINE: Clive Crook
HIGHLIGHT:
The larger significance of PNTR is political-- for both
the
United States and China.
BODY:
Political and business leaders who see themselves as champions of
free trade have served the cause poorly. For years, admittedly,
the
institutions they built to promote open markets worked
regardless of the
designers' deeply muddled logic, and the system
succeeded despite itself. At
other times, as now, the bad
arguments on which many free-traders chose to
rely have left the
case for liberal trade wide open to attack.
The leaders of the current backlash against
globalization
should be the softest of targets, but the traditional case for
liberal trade is too puny to refute even them. The arguments
against the
United States granting permanent normal trading
relations to China are
likewise weak. They seem stronger than
they are because the case for open
markets is being made so
incompetently.
Politicians and businessmen are instinctively
mercantilists. They
measure the gains from trade in terms of
additional exports and
"improvements" in the balance of trade.
Trade liberalization often involves
lowering trade barriers in a
coordinated way; governments emphasize gains to
exporters and
play down losses to importers. The argument literally fails to
add up, of course, because every export is someone else's import.
As a
matter of arithmetic, the case for global free trade cannot
be that it
increases everybody's exports more than it increases
everybody's imports.
But the problems do not stop there. If you measure
the
gains from trade on a scale that says exports are good and
imports
are bad, then allowing more imports must be a concession-
the very term that
trade negotiators use to describe lower
tariffs and quotas. Only a fool
makes unilateral, unreciprocated
concessions; no wise government makes
concessions to an
unfriendly country, unless it gets some larger advantage.
The logic of the World Trade Organization is wholly
based
on this idea of exchanging concessions. Granting PNTR
would give
China secure access to the same concessions that America has
already bestowed on other countries. What has China-the world's
biggest
remaining dictatorship-done to deserve this privilege?
You only have to ask
the question to see that the answer is, "Not
enough."
In reality, lower import barriers mainly benefit the
country that does
the lowering. Trade is a way to turn goods that
a country makes efficiently,
relative to other countries, into
other goods that it wants but makes less
efficiently, again
relative to others. The result is higher incomes, and
this
benefit really does scale up globally. The worldwide sum of
exports
and imports, measured properly must be zero, but the
global gains from trade
are a big positive number, and the more
intensely countries trade, the
bigger this number gets.
So the main reason why the
United States should keep its
import barriers low is that-regardless of what
the other
countries do-it helps the United States. Is this really so
improbable? America has the most vibrant and successful economy
in the
world, and it has long been among the most open to trade.
Either altruism
makes you rich, or those unreciprocated
concessions weren't concessions at
all.
The case for liberal trade has been built on
sand, and
now we see the results. I disagree with my friend Jonathan Rauch,
who argued in this space (see NJ, 5/13/2000, p. 1495) that the
backlash
against globalization has a lot to do with the arrival
of the WTO, which
appears to have more power than its
predecessor, thus drawing greater
criticism without, in fact,
having any extra power to get things done. It is
true that the
WTO is a better class of whipping boy, but in my view this is
a
second-order issue.
Before Seattle (as Gary
Clyde Hufbauer of the Institute
for International Economics has pointed
out), the backlash
against globalization had already stalled the Free Trade
Agreement of the Americas and slowed enlargement of the European
Union.
It had defeated efforts to liberalize trade in the Asia
Pacific Economic
Co-operation forum. It had killed the
Multilateral Agreement on Investment.
And it had delayed for
months (until this past week) a vote on more liberal
trading
terms for Africa and the Caribbean Basin countries. Since Seattle
there have been violent protests in the United States against the
IMF
and the World Bank, and attacks around the world on assorted
symbols of
global capitalism, including banks, coffee shops, and
a statue of Winston
Churchill.
None of this has much to do with fears
about the WTO's
new powers, real or imagined. It partly reflects, as I
argued
here recently (see NJ, 5/6/2000, p. 1407), a periodic upsurge in
Western guilt over Western economic success-and partly the fact
that
there is a vacuum where the popular case for free trade
should be. What
supposedly enlightened politicians say on this
subject is unconvincing. And
in the end it is unconvincing
because it is wrong.
And now they are doing the same thing on PNTR for China.
Indeed the mercantilist argument is being put forth with renewed
vigor.
Look, it is argued, America is already open to Chinese
imports, so we have
nothing to lose. PNTR will oblige China to
open its markets
to us; it's all gain, because we will sell more
exports without having to
buy more imports. It will help the
trade deficit. Think of the extra jobs.
In all likelihood there will be no great
"improvement" in
the trade balance: Once the value of the dollar and other
financial variables have adjusted to the change, additional
exports to
China will be offset by extra imports, not necessarily
from China. And there
will be no net extra jobs. American's
employment opportunities are decided
by monetary policy, not
trade with China. If exporters to China hire more
workers,
workers elsewhere, one way or another, will be displaced. All of
this is just another way of saying that the American economy is
already
at full employment. On the other hand, it is true that
jobs in the export
industries, which would expand, are better
paying than jobs in the
import-competing industries, which would
shrink-this is one part of the
standard pro-PNTR argument that
does hold up.
Still, the fact that America is already open to
Chinese
imports means that, so far as direct trade effects are concerned,
America has little to gain, not little to lose, from PNTR.
China,
again so far as trade effects are concerned, may not have much to
gain, either. Its accession to the WTO is now virtually assured,
regardless of the decision on PNTR. Without
PNTR, China's
government (as mercantilist as the rest) will
withhold its import
"concessions" from American exporters-but this should
not do very
much harm because it will have many other rich countries to buy
from instead.
The larger significance of the
PNTR debate is political-
and this goes for the United
States and for China. If America
withholds PNTR, another
trade-liberalization measure will have
gone down to defeat despite the fact
that, even on the
traditional mercantilist logic, the case for it was
rock-solid.
The desire to punish China by leaving open the threat of future
trade sanctions will have outweighed the perceived benefits to
the
American economy of better access for its exporters. This
would be a
high-water mark for the false and dangerous idea that
open markets are a
gift to foreigners.
What of the political
implications in China? Its
leadership will be distressed and embarrassed if
America
withholds PNTR. For some in the West, rightly
disgusted by the
tyrants of Beijing, this is reason enough to do it. But my
guess
is that both sides-the regime and the anti-PNTR
people-are
miscalculating.
China's leaders are
freeing up the economy faster than
they would like because they feel they
have no choice: Growth is
slowing, unemployment is rising, the banking
system is a mess,
and the leadership must act. It hopes to revive the
economy and
thereby stay in power. Liberalizing the economy should indeed
revive it, but almost certainly at the price of loosening the
rulers'
grip. Wider contacts through trade with the West will
empower the new
Chinese middle class both economically and
politically. Trade will spread
the rule of law, because trade
cannot flourish otherwise, and because
Western companies
(American ones especially) will insist. These changes will
equip
ever-more Chinese with the knowledge to compare their system with
the liberties and opportunities afforded in the West. That
comparison
spells doom for the regime.
If PNTR
is withheld, the Americans who want to punish
China's leaders will have
their moment of victory. But the
humiliation inflicted on Beijing will
strengthen China's
reactionaries, inflame nationalist sentiment, and
aggravate
popular suspicion of engagement with foreigners. China's critics
will have set back the worthy cause they claim to espouse. In
this they
have much in common with many free-traders. On PNTR,
economics and politics point the same way. Congress should grant
it.
LOAD-DATE: May 23, 2000 
