China

The High Risk of Learning the Wrong China Lessons

The trendy view of U.S.–China economic engagement lends itself to policy “fixes” that could make things worse, not better, for both the United States and the world.

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Everywhere you look in Washington these days, you'll find a China hawk. Many, however, look upon China's recent and obvious economic, foreign policy, human rights, and public health offenses and point fingers not at Beijing but inward at U.S. policymakers from decades ago. In particular, a bipartisan chorus of politicians, think tankers and presidential advisers decry the 2000 U.S. law that granted China "permanent normal trade relations" (PNTR) and China's 2001 entry into the World Trade Organization (WTO), and blame it for both the country's rise and the now-famous "China Shock"—the period between 1999 and 2011 during which a sizeable increase in Chinese imports supposedly destroyed approximately 2.4 million U.S. jobs. They've in turn used this "mistake," to justify grand rethinks of current U.S. foreign and economic policy—including withdrawal from the WTO itself. Since we got China so wrong, critics argue, we clearly must abandon traditional U.S. positions on not only China but also trade agreements, industrial policy, labor policy, and international engagement more broadly. 

The trendy view of U.S.–China economic engagement errs repeatedly, and in doing so risks new U.S. policies that "fix" a "problem" of limited actual import and which could make things worse, not better, for both the United States and the world.

For starters, a comprehensive economic and historical accounting of China's WTO accession and the China Shock collapses the hawkish caricature of a naïve U.S. government fueling the destruction of the American workforce in the idealistic hope of Chinese democratization. Numerous studies completed since the original China Shock research reveal fewer American jobs lost; significant consumer benefits in terms of lower prices and increased variety; substantial employment gains in services and export-oriented industries; and net economic benefits for the U.S. manufacturing sector and the country as a whole. Even if one were to treat the China Shock as economic gospel and pin most job-losses on PNTR, moreover, perspective on this damage is sorely needed: the 2 million American jobs destroyed over a 12-year period are less than the average weekly unemployment filings in April through June of this year, and even in normal times, the 1 million manufacturing jobs attributable to the China Shock would constitute less than 20 percent of all such losses (and less than 5 percent of all job losses) over the same period. Does that demand radical policy changes?

Recent analyses also show that U.S. low-skill manufacturing employment and "late stage" industries with routine, standardized processes likely would have suffered the same fate in the last two decades, regardless of the China Shock, due to non-trade issues like automation and competition from other developing countries. In fact, the data show that manufacturing jobs as a share of the U.S. workforce experienced only a modest change in their downward trend before and after China entered the WTO, and that Chinese imports replaced other imports (particularly those from Asia), not domestic production, between 1990 and 2017.

These numbers answer a counterfactual question that economic nationalists and other PNTR critics rarely ask: what would have happened without the China Shock? The data indicate that Chinese import restrictions would not have saved most of the U.S. manufacturing jobs destroyed between 1999 and 2011—they would have simply changed the destroyer to other things, including non-China imports. This is precisely what officials in the George W. Bush administration saw in their data at the time, and exactly what happened when the Obama administration blocked Chinese tire imports under the special "safeguard" mechanism agreed as part of China's WTO accession: instead of China tariffs boosting domestic production, imports simply shifted to non-China sources (while prices, of course, increased). This "trade diversion" also resulted from the hundreds of "trade remedy" duties that the U.S. imposed on Chinese imports since 2001.

Other facets of China's WTO accession also defy conventional wisdom. For starters, PNTR did not actually open the United States to Chinese imports: in every year since 1980, China faced no greater trade barriers than other ("most favored") U.S. trading partners; Chinese imports were already increasing substantially before PNTR; and economic, historical, and anecdotal evidence show the probability of congressional revocation of China's trade status to have evaporated by the late 1990s. At most, PNTR merely accelerated a bilateral economic integration that was already well underway. (By contrast, China's WTO accession did open China: average tariffs dropped from around 40 percent in the early '90s to less than 9 percent in 2006.)

It is also a myth that the United States rubber-stamped Chinese WTO accession due to its dreams of Chinese democratization. Yes, as Dan Drezner recently noted on these pages, American policymakers did hope that China's very real economic liberalization would produce political liberalization as well, but this hope was not the primary motivation for U.S. policy, nor did it cause Washington to go easy on Beijing.  Instead, China's WTO accession took more than 15 years and required dozens of intergovernmental meetings, negotiating texts, and Chinese economic reforms (not just the aforementioned tariff reductions)—reforms shown to have been so significant as to have fueled China's post-WTO export competitiveness. The United States, meanwhile, was the final holdout among large industrialized nations to approve China's WTO accession via bilateral negotiations, demanding ever more concessions from the Chinese government—including the right to impose special duties on Chinese imports—over a contentious 13-year negotiation. Key Clinton administration speeches and policy documents also demonstrate that U.S.–Chinese engagement was primarily a pragmatic decision to achieve commercial and foreign policy objectives, not "democratization." 

Indeed, based on the facts at the time, Washington policymakers had little choice when deciding whether to pass PNTR. Every other WTO member had done so years earlier; China was a growing, billion-person nuclear power reforming economically; annual NTR approvals would have almost certainly continued; and, even with higher U.S. tariffs, globalization (plus U.S. customs law) would have still allowed Chinese goods to enter the United States as parts of "non-Chinese" products. Rejecting PNTR would therefore have punished U.S. companies, heightened diplomatic tensions, and denied the U.S. government a new venue to press for reforms—all while failing to prevent China's rise. Thus, the actual alternatives to PNTR—another counterfactual that critics don't consider—would have been economically and geopolitically inferior. 

The current obsession with China's WTO entry also ignores myriad U.S. policy failures that actually did enable China or harm American companies and workers. Most notably, successive U.S. administrations pursued far too few WTO disputes in response to real Chinese trade infractions, despite the fact that global trade rules discipline key irritants like industrial subsidies and intellectual property, and that aggressive litigation has proven effective in curbing Chinese abuses. Other U.S. policy failures include the United States' withdrawal from the Trans-Pacific Partnership, a treaty that was designed in part to counterbalance China's economic and geopolitical ambitions; its failure to reform tax, trade, and immigration policies that inhibit American companies' global competitiveness; its failure to modernize adjustment assistance and worker retraining programs intended to mitigate trade, technological, or cultural disruptions; or its continued imposition of tax, education, occupational licensing, criminal justice, zoning, and other policies that leave American workers unprepared to compete in a global economy or discourage adjustment and recovery when disruptions occur. 

All of these policies are indeed worthy of criticism and debate, but they have nothing to do with the decisions to pass PNTR, allow China to join the WTO, or otherwise "normalize" trade with China. And blaming China for these policies' failures relieves them—and their political shepherds—of needed attention and reform, while also risking the wrong answers to complex cultural, economic and geopolitical issues.

Such increasingly common "answers" are precisely why it is critical to have an accurate account of long-past events (experts uniformly agree that the China Shock ended years ago). China's rise and the bilateral relationship arguably present this generation's most pressing geopolitical issue, and the Communist Party's human rights abuses, territorial expansionism, global health transgressions, and economic reversals deserve American scorn and response. Just as real and important are the seismic labor market and cultural disruptions that have upended many American families and communities. The proposed solutions to these problems, however, should stand on their own merit, not by pretending that they are an essential correction of the "mistakes" of PNTR and economic engagement with China more broadly. Doing so relieves such plans of the scrutiny they deserve, and could lead to truly bad governance: increasing U.S. protectionism and nativism, fomenting armed conflict, ignoring past policy mistakes, and thwarting a political consensus for real policy solutions to very real challenges—including and especially China.

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  1. The lesson is China is an aggressive, dangerous police state. Trading with China comes with the cost of funding that police state and their aggression. Trading with China isn’t going to reform them or make them more free. It will only make them more powerful and more dangerous.

    Sorry but your cheap shit from China comes at a cost that is way more than the benefits.

    1. China is a much better place now than it was before their market reforms. Restricting trade will not make it better.

      1. No it isn’t. Before the market reforms it was just as repressive. What is going on right now with the Muslim minorities is just as bad as went on under Mao, just not as pervasive. And China still harvests organs from prisoners and has constructed one of the most horrific and pervasive surveillance states in history. To the extent it is any better, that is outweighed by how much more powerful it is and more of a threat to it’s neighbors. Before the market reforms China was a threat to its own people. Now it is a threat to all of east Asia.

        That is the price your cheap shit from China carries. Stop pretending otherwise.

        1. You think Mao’s China was a better place for its citizens, and a better government for the world to deal with?

          1. I think it was no better a place for it’s citizens from a civil rights perspective. They are richer but they are not freer.

            But it is a much more dangerous and difficult country for the world to deal with now. China was zero threat to it’s neighbors under Mao short of him going insane and launching a nuclear war. It intervened in Korea but accomplished nothing except to save North Korea. It tried to invade Vietnam in the late 70s and pretty much got it’s ass handed to it. The idea of China retaking Taiwan or starting and winning a war with Japan in 1980 was laughable. Today it is a real threat and Japan and all of China’s neighbors are rearming as a result.

            Also, China posed zero internal threat to the US under Mao. Today, Chinas billions influence colleges, Hollywood, and corporations and the culture in ways Mao never dreamed of. No one working in the NBA would have been fired for criticizing China in 1980. Today, that is exactly what would happen to you.

            From the US perspective, Mao’s China was much less of a threat than today’s China. And that increase in the threat is entirely the result of China’s increase in wealth and influence that came with our trading with them.

            1. I think interests on the Indian subcontinent would disagree with your assessment that Mao was no threat to them.

              1. Tibet certainly thought Mao and his ilk were.

                An actual invasion over the Himalayas would be a stone bitch. Which is why India and China have kept it to slap-fights for the last 70 years or so.

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        2. So you’re basically saying the world would be better off if the Chinese people went back to starving to death like they did during the Cultural Revolution because their government would be broke and incapable of threatening it’s neighbors.

          1. And you are saying that their starving is somehow the US’s fault such that it is obligated to trade with and fund an aggressive totalitarian state that is a direct threat to the US and it’s allies to prevent it.

            And who are you kidding anyway? You don’t give a shit about the Chinese, you want your cheap shit. It is not like working in some Nike sweat shop is some great gift to the Chinese people. And a good amount of the goods we buy from China are made by straight up slave prison labor. So, don’t feed me your bullshit about what great favors you are doing the world by also profiting from all that.

            1. “It is not like working in some Nike sweat shop is some great gift to the Chinese people.”

              Compared to the farms they were force onto by Mao, it most certainly is. My grandmother worked in a shoe factory her entire life. It’s closed now. One of those lamented and romanticized manufacturing jobs that went overseas. Seems like you’re saying that shoe factories suck for China but were awesome when they were in the states.

              By the way, trade with China is not trade with an “it.” It’s trade with the people who make the stuff. It enriches the people and makes their lives better. Do I really care personally? Not really. But economically trade is always better. Didn’t Bastiat say something about troops crossing borders when good don’t?

              Anyway, I’m done with this conversation. I don’t have the patience to deal with your histrionics.

              1. What about the slave labor? You think you are doing them a favor too?

                1. The Libertarian solution is to trade with everyone. Communist China, theocratic Iran, and even the Confederate States of American, when they existed, should be part of an open, global marketplace.

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              2. It’s trade with the people who make the stuff

                Hi I’m sarcasmic and I don’t understand communism at all.

                1. Hi I’m Matt and I personally trade with people named CeCe, Ding, Lai, Chunfeng, and Liuyang in China. I think you don’t understand the difference in something called “communism” and an actual mixed economy consisting of both governments and private actors. These guys aren’t slaves and their employees are not either.

        3. Then these are the liberties to be focused on, not political liberties or democratization. All the repression of Moslems Ms. Dalmia focuses on are the result of democracy in India. “The people” won’t allow the majority of them to be kicked around when they have the tools of democracy, but they will kick around minorities, even large ones, especially when they think they’re “retaliating first”.

        4. “Now it is a threat to all of east Asia. ”

          Threatening trade sanctions against China is not going to stop China from internal policies or those regarding her neighbors, and you are delusional if you think it will. A few years back Russia annexed the Crimea and the US did nothing to stop it. And the past six months has done nothing to revive America’s desire to act as global policeman. Trump’s reversal on the Huawei issue shows us that China is no longer the backwater it once was and is now too important to the world’s economy to be dictated to.

      2. Which is why the US should have continued trading with Germany and Japan through 1941. If so, Japan would not have attacked Pearl Harbor and Germany would have not declared war on the US.
        All good. Trade is the most important thing.

        1. You’ve a point on Japan. Even through the sarcasm. Though the Royal Navy had a bit to say about whether the US could trade with Germany.

    2. California, New Jersey, and New York are aggressive, dangerous police states as well! We should stop trading with them ASAP!

      1. Are they planning to invade Taiwan anytime soon? Have they imposed a military occupation of Hong Kong?

        If your only defense of China is “but what about California”, you have just conceded the argument. Are you trying to be ironic here? If you were, you would not have said anything different. Instead, you are just that stupid.

        1. You haven’t got any evidence for an imminent invasion of Taiwan, except 70 years of hindsight that they didn’t invade before.

          1. The Chinese say they plan to take it back. They are building a blue water Navy and enormous missile force to do it.

            Do you think they are kidding? Or do you think it is not really an issue until they actually do it?

            1. Funny thing though, that navel build up doesn’t seem to include sufficient sealift to support an invasion. It’s mostly for control of commerce.

              1. Cutting Taiwan’s SLOCs appreciably, coupled with an internal opposition to the Kuomintang movement, might induce Taiwan to adopt a more pro-PRC stance.

                You’re right, the PRC doesn’t have the amphibious sealift capability to invade Taiwan. Grab a port though, and let that merchant fleet do the rest…

                Straits of Taiwan (Formosa) are no bueno for the SSN-heavy fleet of the USN. Just too damned shallow. Pretty good for aerial dropped mining though.

        2. You didn’t understand the California argument. If the political border between the US and China is excuse enough to interfere with the human right to trade, why not the California border? Why not the San Francisco or Seattle border?

          1. That’s easy. ChiComs bad.

            1. Yes sarcasmic they are. Do you think they are good? I think you actually might. And that is fucking unbelievable. My theory is you started getting laid by some leftist broad. I hope that is the case, because that would make your new stupidity understandable and forgivable. We have all been there.

              1. I think that trade enriches the people and makes their lives better. It gives us access to cheaper stuff which leaves us with more money to buy other stuff, which makes our lives better. Seems like you want to punish the Chinese people because their government sucks. I don’t.

                And no I haven’t gone all left. It just so happens that the left has drifted libertarian lately, which is really odd. I’m not going to abandon my libertarian principles because the left is coming around to them. Whereas you hate the left so much that you will oppose them even when they get it right, just because.

                Like I said above, I’m done. You’re getting emotional and I don’t have the patience for it.

                1. “It just so happens that the left has drifted libertarian lately,”

                  LOLWUT ???

    3. Sorry but you are dead wrong.

      Trade decreases the possibility of war between governments and increases two-way communication between people and societies.

      It also increases wealth on both sides, and wealth increases the pressure on governments from their citizens. Wealthy people don’t like restrictions and get pretty agitated, especially young adults who haven’t built up reputations and personal wealth yet for governments to trash. The current agitation by rich white kids is a perfect example of this. Hong Kong is another example. The easiest way to increase pressure on the CCP to back off is to increase trade and make them even wealthier and more agitated.

      A world with 5-10 times as many engineers and researchers would be a damn fine world. We won’t get there by trying to push the CCP into a more militaristic attitude and by giving them all the propaganda they want to make their people hate us for trying to keep them isolated. The Cuban embargo is one of the dumbest moves made; it didn’t isolate them from Europe, it isolated us from them, and it gave the Castros plenty of propaganda to justify their crackdown on enemies of the state.

      Trade is a natural human process. Governments meddling with trade are violating fundamental human rights.

      Once again, I will ask the question you trade-warriors never answer: where do you get the moral authority to control who I do business with? Usually no one answers, because they know how shoddy their answers are. Sometimes some brave fool says “national security”, which is no answer.

      1. Trade decreases the possibility of war between governments and increases two-way communication between people and societies.

        That is a total myth. We trade with the Middle East to the tune of hundreds of billions of dollars a year and have spent 50 years in and out of war there. Meanwhile, we never traded with the old USSR and never went to war with them.

        Trade does not stop wars. It never has. If it did, Europe would have been the most peaceful place on earth from the Middle Ages on. There isn’t a single fucking example of trade ever stopping a war. What there are is examples of countries that were already peaceful trading. Peace creates trade. Trade does not create peace. You idiots have the causality exactly backwards.

        1. Thank God all that trade in Europe prevented WWI in 1914.

      2. As noted we have had substantial trade with China for 30 years and they are still totalitarian shitheads. The people of China are not more free they just have more stuff.

        Libertarians live in a mythological world that assumes all cultures will tend toward freedom. I assure you many cultures do not want what you are offering.

        1. “The people of China are not more free they just have more stuff.”

          Chinese are more free than they were 30 years ago. Foreign travel and tourism is no longer extremely rare and now not all that unusual. Passports are reasonably cheap and have been issued to something like 10% of the population. There are actually more Chinese passports in circulation than American ones.

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      4. This is a very good point. Countries that trade and economic ties are less likely to get into wars. Also with trade you infusions of ideas, making it harder for authoritarian governments to operate.

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    5. ” Trading with China isn’t going to reform them or make them more free.”

      It would be foolish to think that US trading with China would make the Chinese more free. If more freedom comes to China it will come when the Chinese demand it. Just as in the rest of the world including the US.

      Trade may play a role as it creates an atmosphere of rising expectations which leads to increasing social demands.

      “The lesson is China is an aggressive, dangerous police state.”

      America’s ruling class have benefited from trade with China, possibly more than anyone else, but it’s good to remember the quote from V.I. Lenin, ‘The Capitalists will sell us the rope with which we will hang them.’

    6. Indeed. Trade is a two-way street in terms of influence.

      And, not surprisingly, our “elites” loved the idea of the power the Chinese elites have over their populace and decided to embrace that.

      1. The Chinese elites are afraid of the their people. They have laws that prevent citizens from arming themselves, for example. They are well aware that their position is precarious and could change to their disadvantage. American elites don’t fear the public in anything like the same way.

        “our “elites” loved the idea of the power the Chinese elites have over their populace and decided to embrace that.”

        This is nonsense. American elites do not seek power over the populace. They seek power over politicians. This is done by funding election campaigns and other means.

    7. Reason still shilling for the CCP as long as the US ruling class can save a nickel with Chinese slave labor.

      Another “Libertarian” Moment, brought to you by Reason.

  2. I believe in free trade with China. I may need to purchase a new liver soon due to quarantine drinking and want one from a HK protester they imprisoned for speaking out, or a Muslim slave from a Nike factory. If my $$ makes China a bigger threat to allies like SK or Japan, what do I care?

    We should also reserve slots in our universities for big CCP $$ to educate China’s new weapons designers, and definitely take research grants from them.

    Thank God China is supporting our firefighter media by hiring them for propaganda organs and buying multi page thinly disguised ads in failing newspapers.

    1. Buy cotton from the Confederate States of America!

  3. IMO there is no possibility of learning the RIGHT lessons about China until we understand that China itself was almost irrelevant re what the US chose to do. There is no ‘China lobby’ within the US govt saying ‘let’s do what’s good or bad for China’. Or at least not one that matters. China is the OBJECT of foreign policy not the driver. There is however a ‘wing’ of US foreign policy that basically believes that the primary purpose of US foreign policy should be to benefit American business. It’s been around since forever. Mead calls it ‘Hamiltonian’. It has a lot of value when it is ONE of the inputs to foreign policy but it also has a strong tendency to tip over into corruption/cronyism and into ‘military-banana complex adventurism’. And for whatever reasons, the strawman of ‘China’ has been luring business since the days of Marco Polo and Christopher Columbus. Or more recently, the China clippers and the British East India opium dealers.

    THAT is what drove US policy re China. The marketing dream that ‘if only we can sell one shoelace to every Chinee we be rich’. Which is in fact the exact same dream behind the Opium War – the first afaik war for ‘free trade’. Combined with the more recent supply chain dream ‘if only we can leverage all that cheap labor with no risks to sell shit here then we be rich’.

    In China’s case of course there is no possibility of military-banana complex adventurism. Unlike say Guatemala. Which is why that particular wing of foreign policy needs to be restrained from having too much influence. Else it just corrupts.

    1. There is no ‘China lobby’ within the US govt saying ‘let’s do what’s good or bad for China’.

      China has bought enough of them off for one to exist.

      1. Or – you’re just part of another ‘wing’ of foreign policy that tends to see everything foreign as a possible conspiracy against the US. Depending on other beliefs, those two wings are what Mead calls ‘Jeffersonian’ or ‘Jacksonian’. Which also have value when they have an input into foreign policy – but have some serious flaws too when they drive foreign policy.

  4. How important is political liberalization? If I had to choose the spheres of liberty allowed, political liberty would be my lowest priority. In fact if we had all other liberties, political liberty could lead only to harm.

    1. All liberties are political, because without political liberties, government controls your speech, your person, and your property.

      1. Then you’re either defining things differently or have come to a very different conclusion about causality.

  5. Obviously the China hawks are wrong.

    But how does the US deal with the oppression of Tibet and East Turkestan (ie, the uyghurs and other muslim minorities)? We’ve stood idly by while China built concentration camps for millions, exploited slave labor, and murdered or forced sterilized large numbers of them. The argument to punish China on trade or other activities should come from a moral justification, not some narrow idea of national interest. (More trade is *always* in the national interest).

    Rather than go after trade directly, maybe the right response is to declare chinese-held US debt worthless. Of course, we’d have to get our own deficits under control first, or we’d harm ourselves too.

    1. “maybe the right response is to declare chinese-held US debt worthless”

      That seems a little self-serving to be a moral response. How would it help prisoners, Tibetans or Muslims?

  6. The Chinese Communist Party (CCP) performed a successful sneak attack on the US. I don’t blame the mass of the Chinese people for an attack planned and executed by Chairman Xi and his politburo. We should counterattack against Xi and his closest colleagues in the politburo. We don’t want another world war, we just need Xi and his friends dead, which would discourage further sneak attacks.

  7. “Key Clinton administration speeches and policy documents also demonstrate that U.S.–Chinese engagement was primarily a pragmatic decision to achieve commercial and foreign policy objectives, not “democratization.” ”

    It was primarily a pragmatic decision to achieve massive personal kickbacks. China BOUGHT our China policy.

  8. I appreciate the mention of the TPP. This is a treaty vilified by the left and the right, but probably the best hope for containing China.

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