The China Deal: If You Can’t Sell It, Buy It

May 24, 2000

Mark Weisbrot
San Diego Union Tribune, May 24, 2000

Knight-Ridder/Tribune Media Services, May 20, 2000
Milwaukee Journal Sentinel
, May 24, 2000

Here they go again. The Clinton administration is pulling out all the stops to badger, cajole, and bribe Congress into expanding our commercial ties with China. Those who remember the fight over NAFTA will notice remarkable similarities.

They tried the economic arguments, but these fell flat. Then they switched to “national security”– as if China is about to start a new Cold War if it doesn’t get Permanent Normal Trade Relations with the United States. Then come the bridges and pork for the best Congress that money can buy.

“The vote-buying that is going on right now is directly proportional to the money at stake– and there’s even more money at stake here than with NAFTA,” said John MacArthur, author of the new book, The Selling of Free Trade: NAFTA, Washington, and the Subversion of American Democracy. “We won’t see the full extent of it until afterwards– when members of Congress start calling in their I.O.U.’s.”

Selling this deal on its merits is not easy. It’s tough to argue that our trade with China creates jobs in the United States, when we are running a huge, $70 billion annual trade deficit with them.

That hasn’t stopped some of the paid warriors from saying it anyway. Last week I was on a TV talk show with a representative of the Chamber of Commerce, who casually brushed off our entire trade deficit– $271 billion last year and growing fast– as though it were a bad hair day. He insisted that America’s expanding trade must be creating jobs, because unemployment is at a thirty year low. President Clinton has said similar things: “In the first five years of my presidency, through 1997, four and a half years, 30 percent of our growth came from expanded trade.”

Let’s get one thing straight: a widening trade deficit cannot create growth or jobs. One can argue, under certain assumptions, that exports create jobs. But by the exact same logic, imports take them away. So when imports exceed exports– as they do now by a record amount– it means that trade can only have a negative impact on employment and growth.

The US trade deficit has grown enormously over the current economic expansion– it is now running at an annual rate of $345 billion. It is therefore absolutely false to assert that trade has made a positive contribution to our long cyclical upswing or to the low unemployment that has accompanied it.

How, then, do we manage to have such high employment while losing hundreds of thousands of manufacturing jobs to trade? The short answer is that the Federal Reserve–at least until a year ago– allowed the unemployment rate to fall much further than it had deemed acceptable in the past. (It has since changed course, with six interest rate increases over the last year, but the effects have not yet kicked in).

So the overall level of employment in the economy is mainly determined by the Fed’s interest rate policies. When the Fed allows it, our economy is capable of generating enough jobs to compensate for those that are lost to trade. But there is still a cost to this job loss– most importantly to the people who lose their jobs. For those lucky enough to find new jobs, it is typically at lower pay.

And the process of negotiating trade and commercial agreements that throw American workers into increasingly harsh competition with the lowest paid workers in the world has taken its toll. For more than 26 years now, the majority of the American labor force has not shared– at all– in the gains from economic growth.

The majority of the public understands this connection very clearly. A recent Business Week/Harris poll found that 68 percent believed that trade agreements with low-wage countries like China and Mexico lead to lower wages in the United States.

The Clinton Administration asserts that this deal will open up Chinese markets to US goods, thereby lowering our trade deficit with China. But the main effect of the agreement on US companies will be to increase their direct investment in China, much of which goes to production for export. A lot of those goods will end up here in the local Wal-Mart. The Economic Policy Institute projects an 80% increase in our trade deficit with China over the next decade, and no one has produced any numbers that show the deal leading to a reduced deficit.

Supporters claim that US corporations are a force for progress in China, but a new report by the National Labor Committee in Support of Human and Worker Rights paints a very different picture: young women sewing Nike clothing from 7:30 a.m. to 10:30 p.m, seven days a week, for 22 cents an hour. Timberland shoes, New Balance running shoes, Kathie Lee handbags, and other American brands were found to manufactured under similar conditions. Forced overtime, unsafe working conditions, workers fired and even imprisoned for organizing– it seems that US companies are more interested in taking advantage of the situation than improving it.

The Clinton administration’s claim that the pact is needed to upgrade relations with China also rings hollow. The administration is currently considering a national missile defense program that Chinese officials have stated would cause a major arms race between China and the United States. This and other proposals for a “theater missile defense” in East Asia are much more likely to spur a new and dangerous Cold War than the U.S.Congress rejecting a trade deal that is bad for workers in both countries.

They can haul out former Presidents and Secretaries of State, dust them off and parade them before the press like they did for NAFTA, but it doesn’t make their arguments any stronger. And Alan Greenspan’s endorsement is not necessarily a plus: readers of the business press will know how dedicated he is to preventing real wages from rising here. The China deal will help him sleep easier at night.

Those members of Congress who are still on the fence, holding out for a bigger bribe, should consider this: when the economy slows down, the effects of this deal are going to be more painfully visible. Those who voted for it will pay a political price– and for some, that price will be bigger than the prize for which they sold their vote.

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