China

Normalizing Trade Relations With China Was the Right Thing To Do

Trade Representative Robert Lighthizer and House Speaker Nancy Pelosi's revisionist history of the U.S.-China trade relationship misses the mark.

|

|||Tzogia Kappatou/Dreamstime.com
Tzogia Kappatou/Dreamstime.com

U.S. Trade Representative Robert Lighthizer has long claimed that Congress made a major mistake when it granted China "permanent normal trade relations" (PNTR) status. Testifying before the House Ways and Means Committee last month, Lighthizer praised Speaker Nancy Pelosi for being "a leader on this issue," noting that "as long ago as 2000, she wisely warned about the dangers" of such a move. No member of the committee pushed back to defend the decision—not even Chair Richard Neal (D–Mass.) or ranking member Kevin Brady (R–Texas), both of whom voted for PNTR back in 2000.

But Neal, Brady, and a bipartisan majority of Congress were right back then. Lighthizer is exaggerating the costs of PNTR, minimizing its benefits, and claiming it failed to deliver on expectations it in fact was never intended to fulfill.

Congress passed PNTR to smooth China's entry into the World Trade Organization (WTO), but the country probably would have joined the WTO either way. And Congress would likely have continued renewing normal trade relations with China each year, as it had since 1980, granting it the same access to the U.S. market as almost all our other trading partners. The key difference would have been that the United States would not have benefited from the Protocol of Accession that China had signed, in which it made significant commitments to reduce tariffs and to further open its economy to imports and investment. Other WTO members would have gained that additional market access, while U.S. producers would have faced higher, discriminatory barriers.

Rejecting PNTR would also have meant that the U.S. could not use the WTO dispute settlement mechanism to challenge Chinese trade practices. A recent analysis by the Cato Institute documents 22 cases brought by the United States against China since it joined the WTO in 2001. "In all 22 completed cases, with one exception where a complaint was not pursued, China's response was to take some action to move toward greater market access," Cato concluded, adding that "there are no cases where China simply ignored rulings against it."

By approving PNTR, the U.S. Congress opened the door for U.S. producers to dramatically expand the value of American-branded goods and services sold in China. Under China's accession agreement, its average duty applied to products the U.S. exports to China has dropped from 25 percent before its entry to 7 percent. It has also liberalized its rules on services trade and foreign direct investment.

As a result, U.S. exports of goods and services to China have grown exponentially, according to Commerce Department figures. From 2001 through 2017, before the Trump administration launched its current trade war against China, annual U.S. exports grew from $24.5 billion to $187.5 billion, an almost eightfold increase. Sales by U.S. majority-owned affiliates in China soared more than tenfold from 2001 to 2016, from $32.6 billion to $345.3 billion; profits from those operations grew more than fourteenfold, from $1.8 billion to $26.0 billion. Between exports and affiliate sales, U.S. companies now sell half a trillion dollars of goods and services a year in China.

To show the supposed failure of past trade policy, Lighthizer held up a chart at the Ways and Means hearing showing that the U.S. bilateral goods deficit with China has grown since 2001. But almost all economists agree that bilateral deficits are virtually meaningless; they certainly are not a scorecard on the benefits of a trade relationship. At any rate, a major reason why our deficit with China has grown is that goods we used to import directly from other East Asian nations, such as Japan, South Korea, and Taiwan, are now routed through China for final assembly before being shipped to the United States. If we take into account only the value added in China, the bilateral deficit shrinks by more than one third.

When Lighthizer flashed his graph, he should have been asked why the deficit with China has kept climbing under the Trump administration's new get-tough policy. The merchandise trade deficit with China in 2018 was a record $419 billion, a full 20 percent higher than the 2016 deficit before the administration came into office. Far from "fixing" the deficit with China, the administration's policies have been accompanied by a rise in imports from China and a fall in U.S. exports.

The administration is not responsible for the growing deficit, but the fact that it has grown despite the duties levied on $250 billion of imports from China buttresses the argument that deficits are the result of underlying macroeconomic forces and are not easily changed by adjusting tariffs.

Lighthizer raised another familiar piece of evidence when he invoked the loss of manufacturing jobs. "In 2000, the year before China joined the WTO, there were 17.3 million manufacturing jobs in the United States," he told the committee. "By 2016, 5 million of those jobs were lost." He acknowledged that not all those jobs were lost because of China, but he left open just how many.

The truth is that more than 80 percent of those jobs disappeared not because of trade with China, or trade with any country, but because of automation and productivity gains. Even the much-cited "China Shock" study by economists David Autor, David Dorn, and Gordon Hanson estimated that China trade was responsible for just under 1 million net manufacturing jobs lost during that period.

Many of those jobs probably would have been lost anyway, regardless of whether China got PNTR status or joined the WTO, thanks to expiring global quotas on the textile and apparel trade and to China's ongoing growth as an export platform. And the direct connection between imports and manufacturing jobs is shaky. In the past two years, a thriving U.S. manufacturing sector has actually added a net 458,000 jobs, all while imports from China and the rest of the world continued to rise.

The fact that China has failed to evolve into a free-market democracy since 2000 is not a failure of trade liberalization or the WTO. The WTO was not created to transform the political and economic systems of its members. It was created to advance the more modest goals of establishing and enforcing basic rules for global trade while facilitating agreements to reduce trade barriers worldwide. And it has done that. Far from being a mistake, that 2000 vote brought China under the discipline of more WTO rules and further opened the growing Chinese market to U.S. goods and services. Far from being a mistake, the vote in 2000 on China PNTR was one of the finer moments of bipartisan postwar trade policy.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

53 responses to “Normalizing Trade Relations With China Was the Right Thing To Do

  1. Does “normalized trade” usually come with the theft of intellectually property, industrial spying and Chinese hackers disrupting the privacy of Americans? Does it also normally come with bellicose military threats to everybody in the south China sea? Does it normally come with the creation of “islands” that are military bases, along with proclamations of sovereignty over international seaways?

    Call me ole fashioned but none of that seems normal.

    1. We get to trade with Communist China for 50 years and then defend ourselves in a war with China for a few years.

      The Fifth Column in the USA wants America to implode so the factions of Anarchists or Socialists can sift thru the ashes and get their Utopia.

      1. I essentially started three weeks past and that i makes $385 benefit $135 to $a hundred and fifty consistently simply by working at the internet from domestic. http://xurl.es/ReadMore

      2. on Saturday I got a gorgeous Ariel Atom after earning $6292 this ? four weeks past, after lot of struggels Google, Yahoo, Facebook proffessionals have been revealed the way and cope with gape for increase home income in suffcient free time.You can make $9o an hour working from home easily??.

        VIST THIS SITE RIGHT HERE >>=====>>>> http://www.payshd.com

      3. Why everyone is confused just join at home online job .This is really good opurtunity for home mom just join this website and Earn money by monthly check .So u cant be miss and join this site as soon as posible .
        Here what i am doo ?

        ??????? http://www.finestylereview.com

    2. The objections to “normalized trade” had little or nothing to do with the theft of intellectual property, etc.

      It was about Democrats supporting unions under the pretense of moral outrages like using political prisoners in forced labor and the Tienanmen Square massacre.

      It was the same kind of progressives horseshit that says we can’t do what’s in the best interests of the United States if it means that we have to shake hands with bad men.

      Some people really would rather lose World War II than shake hands with Stalin. Thank goodness cooler heads prevailed.

      P.S. Incidentally, the arguments for normalizing trade with China didn’t have to do with approving of intellectual property theft, industrial spying, or approving of Chinese hackers either.

    3. Also, there is more evidence that China directly interfered in the 1996 elections on the behalf of Democrats than Russia did in the 2006 elections. People ignore it because every journalist in this country is a fucking Democrat, and they want us to think Bill Clinton’s greatest scandal was the Lewinsky affair, which was like #48 on his list of scandals.

      Chinese nationals were caught illegally funneling millions of dollars into Democrat campaign coffers. Everybody knew it came directly from the Chinese government, but we never got to the bottom of it because the Clinton administration, DOJ, and congressional Democrats stonewalled and hindered the investigations. They put out a quick report that it was a minor affair that only affected a few congressmen, and not the presidental election, and the DOJ refused to appoint an independent counsel despite the vehement demands for one by the director of the FBI.

      Several of the people caught in the scheme were close associates of Al Gore. All of the potential witnesses plead the fifth or fled the country.

      in summary: several prominent Democrat fundraisers were caught in a scheme taking money directly from a semi-hostile foreign government and the Democrat president and his Attorney General refused to allow an independent counsel despite the demands for one by the director of the FBI, who Clinton appointed himself.

      But, go on, please tell me more about how Clinton’s greatest scandal was getting a blowjob.

      1. *2016 elections*

        Also, while the Trump administration has continued to be very hostile to Russia (if you ignore Trump’s words and look at actions), Democrats swung decidedly pro-China around the time this happened.

        1. That being said, of course normalizing trade relations with China was the right move.

          1. Trade with China has helped America greatly. We are all wealthier because of it.

            With that being said, Communists run China and are building a Blue water navy which is designed to neutralize the US Navy.

            List of active People’s Liberation Army Navy ships

            The PLA Navy has over 40 amphibious landing ships. Can anyone guess why China needs so many landing ships? China plans on invading islands that they don’t currently control.

            1. Holy shit! 40?! Fuuuuuccck

              1. McGoop the troll, wants America to be destroyed anyway.

      2. I read this like those hilarious ‘A very special episode’ or ‘Zack Morris is trash’ videos on Funny or Die/youtube.

    4. 1. You can’t steal “intellectual property”, because such a thing doesn’t exist.
      2. Industrial spying should be stopped by industries who want to keep trade secrets secret. That should never be the job of the State.
      3. Hacking (accessing property that isn’t yours) is bad regardless of who does it, or why.
      4. States threaten things. That’s their Sine Quo Non.
      5. States build death machines. See above.

      There is nothing wrong (read: initiating force) with one human having a voluntary exchange with another, regardless of where the humans are located.

      1. One can be in favor of intellectual property rights being reformed without going full retard and claiming they don’t exist, you know.

        1. They don’t exist.

          The wheel exists. The “right” to the “property” of the idea of a wheel doesn’t exist.

          Civilization wouldn’t exist if there were such a thing as “intellectual property”.

          1. Bullshit. Go work in any IP field and then try and tell me that bullshit.

            More work goes into doing an update of Windows than goes into making a 747 jet. No IP protections, and a LOT of types of IP work and all their benefits would go poof. It’s not that NONE would ever happen, but the scale, and quality would drop exponentially without economic protection for ones work.

            And yes, I work in an IP field.

      2. There is nothing wrong (read: initiating force) with one human having a voluntary exchange with another, regardless of where the humans are located.

        So you can point to the individual Chinamen and Americans signing these trade deals and verify that they’re all private entities acting solely on their own behalf and not on behalf of governments and/or the people they represent? That all the employees enforcing the trade agreements at ports of entry are doing so because they dreamed of being private shipping and trade regulators when they were home schooled and that none of them are state employees working directly off of state regulatory handbooks?

        Seems to me that you’re making the usual selective borders argument that, as long as the government doing something you don’t like is American, you’re opposed to it and the very notions of borders and property rights to the point of supporting openly communist dictatorships in doing whatever they hell they like so long as it pleases you by being non-American.

  2. “The fact that China has failed to evolve into a free-market democracy since 2000 is not a failure of trade liberalization or the WTO. The WTO was not created to transform the political and economic systems of its members.”

    And, yet, that was one of the goals of bringing China on board.

    The CCP censors what people say about them because they’re thoroughly capable of being embarrassed. To whatever extent the CCP has moderated itself in the years since Tienanmen, it has largely been about defending its economic growth because of trade. Why hasn’t China come down harder on Hong Kong’s democracy activists? Why hasn’t China come down harder on Taiwan? It isn’t out of the goodness of their hearts.

    At the end of the Cold War, trade with China was seen as one way to seal the deal on winning the Cold War against communism. It was not yet clear that China wouldn’t backslide into communism.

  3. We probably shouldn’t get lost in the minutia of why this happened and what would have happened if the US hadn’t acceded to China joining the WTO.

    The fact is that trade with China has been enormously beneficial to the United States and continues to be so. Just to show my commitment to intellectual honesty and the fact that truth comes from wherever you find it:

    “Whatever you may say about the benefits of free trade, most of those benefits have already been realized”

    —-Paul Krugman

    http://www.nytimes.com/2015/05……html?_r=0

    Our economy has not been hurting for the 20 years since China joined the WTO, and when our economy has been hurting, China joining the WTO has not been the cause of it. Comparative advantage and free trade share fundamental aspects with capitalism generally, and the creative destruction trade causes are fundamental to further growth. Anyone who’s going to climb out on that limb and oppose free trade for the creative destruction it causes might as well become a Luddite against technological progress for the same reason.

    1. Lenin would have wholeheartedly agreed. He delighted in the Capitalist impulse to sell rope to communist hangmen.

      1. Lenin also miscalculated that Capitalists would sell the coffins to bury Russian Communism.

        1. As a good communist Lenin preferred cremation. You don’t actually think the Romanovs were put in coffins and buried, do you? After they were shot, stripped of several kilos of gemstones secreted about their bodies, cremated, and had their ashes dumped in a mine shaft.

  4. Normalizing trade was the right thing to do. It doesn’t mean that China isn’t a pain in the ass, nor that we won’t be fighting some World War against them in the future. China is a huge, powerhouse, ancient empire with an axe to grind, but you can’t blame that on normalizing trade. Might as well blame President Nixon for opening diplomatic ties. Of course, it is arguable that recognizing China was Nixon’s greatest achievement, and helped prevent War or Proxy War. Just as one could say the same about normalizing trade.
    Does the Chinese government promote stealing intellectual property? Sure! Do they support world wide hacking, and furthermore have North Korea as a junk yard dog to terrorize and hack everyone too? Absolutely. Can we put sanctions on them like we do with Russia? No. Sorry my fellow Americans, you can’t telll everyone what to do, only those that you outgun, and China is a billion plus world power. I am certain that everyone in other countries already knows this. I am not saying we don’t need to prepare and plan, and maybe normalize trade with Russia, even though they did fuck with the 2016 elections and invade Crimea years ago. The USA and its allies need to keep our ties strong. China respects the strength. Turning the USA into an isolationist, friendless nation is the worst thing it can do for everyone.

    1. War is never avoided, but merely deferred to your own expense and your enemies benefit.
      -Niccolo Machiavelli.

      1. I think there is something wrong with that. How do you know which side is the one who benefits and which one pays the cost?

        1. George Custer on line 1 …

    2. China and Russia are not super friendly.

      Playing these two military powers off each other is probably a good strategy.

      China is super aggressive but they also have a major problem- Most of China’s neighbors would be under threat if China started a war, so they would likely side with the USA against China.

      Imperial Japan partly lost because they were the sole Axis hostile power in the Pacific. Sometimes it pays to have powerful friends.

      1. “Imperial Japan partly lost because they were the sole Axis hostile power in the Pacific.”

        They lost because they attempted the impossible, to swallow China. They tried very hard, much harder than half-hearted American efforts in Afghanistan, for example. But containing or defeating China is a lot more difficult than pacifying a militia of part time goat herders without a navy or airforce.

        1. In August 1945, at the end of WWII, Japan still had 2.6 million troops still in China. 1.6 million troops in Korea and facing the USSR. Japan controlled almost 1/3 of China which included most of the non-barren wasteland parts of China.

          Estimated Japanese Strength on or about August 15, 1945
          (scroll down about 3/4 of page to find August 15, 1945 map of Japanese strength.)

  5. They hack our systems, steal our intellectual property, support attacks of all sorts against us and our allies.

    Why, exactly, is normalizing trade with them a good idea? I’m more for nationalizing all Chinese assets in this country, throwing out their citizens and blocking access to them across the board wherever we can.

    1. I hope that our espionage services have used this trade opportunity to get military information from China too.

    2. Why? Because it benefits the people of the US quite a bit and gives China another big reason not to start a major war.

  6. Confucius say: “Man who walk into bar to greeting of ‘Norm!’ only average.”

  7. “Under China’s accession agreement, its average duty applied to products the U.S. exports to China has dropped from 25 percent before its entry to 7 percent.”

    are you high? does everyone who writes for reason a moron? china excludes entire industries from entry unless u.s. companies agree to take on chinese partners and handover all technology. it has been chinas state policy since the 1980s. does that sound like free trade? they get no no tarrifs and technology to make everything themselves cheaper, and we get tarrifs and eventually outsourcing because they don’t even have to do the fucking r&d.

    do you reporters ever fucking look shit up? or are you lying? are you liars, or just stupid, or terrible at your jobs? or all three?

    https://www.cbsnews.com/news/ chinas-tech-transfer-demands- may-spark-pushback-from-u-s/

    https://www.washingtonpost.com/ news/monkey-cage/wp/2019/01/28/ u-s-trade-negotiators-want-to-end-chinas- forced-tech-transfers-that-could-backfire/

  8. I think the point you’re missing is not that Chinese trade hasn’t been beneficial for us in the short to mid term, but that Chinese trade has empowered China to be enough of a threat that those gains will be swiftly eliminated. Perhaps China would not have its current position of power had we not traded with them.

    Also, populists really have you beat on the moral outrage argument when economic decisions cost a million people and their families their jobs. Economic efficiency doesn’t pay their bills and the tone-deafness plays right into the Marxist playbook.

    1. “I think the point you’re missing is not that Chinese trade hasn’t been beneficial for us in the short to mid term,”

      Not true, Just yesterday I purchased a universal remote control. It enables me to change TV channels without leaving the comfort of my bed. Made in China. If that’s not a short term benefit to Chinese trade, then I don’t know what is.

    2. How many jobs would not trading with China cost? There is always the unseen side of the equation.

      And if China loses the US as a major trading partner, that’s going to give them one less reason not to start a major war.

      1. Then why is china preparing for war with the USA?

  9. a 200o vote

    Sub-Editors: How The Fuck Do They Work?

  10. Google paid for every week online work from home 8000 to 10000 dollars.i have received first month $24961 and $35274 in my last month paycheck from Google and i work 3 to 5 hours a day in my spare time easily from home. It’s really user friendly and I’m just so happy that I found out about it..go to this site for more details…

    So I started ========>>>>>>>> http://WWW.THEPROCOIN.COM

  11. “estimated that China trade was responsible for just under 1 million net manufacturing jobs lost during that period.”

    Only a million? Well why didn’t ya say so!

    1. China probably lost a million or so agricultural jobs in the same period. As long as there’s no jobs lost deficit, there’s nothing to complain about.

  12. Yes, just enable the rise of a global communist superpower in exchange for a few iphone bux. Great idea.

    1. Oligarch Profits Uber Alles!

      What downside can there possibly be to enriching Emperor Xi?

      How dare you try to prevent me from saving a nickel on an air conditioning machine?!
      Slaver!

      You just don’t want us trading with the Chinese because your a big fat old racity racist Nazi!

  13. Start working at home with Google! It’s by-far the best job I’ve had. Last Wednesday I got a brand new BMW since getting a check for $6474 this – 4 weeks past. I began this 8-months ago and immediately was bringing home at least $77 per hour. I work through this link, go to tech tab for work detail.
    >>>>>>>>>> http://www.GeoSalary.com

  14. Google is now paying $17000 to $22000 per month for working online from home. I have joined this job 2 months ago and i have earned $20544 in my first month from this job. I can say my life is changed-completely for the better! Check it out whaat i do…..

    click here ======?? http://www.Theprocoin.com

Please to post comments