May 18, 2000
China's Mythic Market
By ALAN TONELSON
ASHINGTON -- 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.
his 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."