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Trade with China

For the latest updates on the China trade issue, please see the relevant section of our blog, Eyes on Trade.

The United States first granted China normal trade relations status in 1981, meaning it faced lower tariffs than a communist country would otherwise face. This status was renewed every year through 2001. By 1986, China was actively liberalizing its economy and lobbying for membership in what would become the WTO. Throughout the 1990s, the Clinton administration passed nearly a dozen trade agreements with China, and in 2000 Congress approved China's WTO membership.

Why the commercial interest in China? Because of its size, low wages, anti-democratic government, lack of labor rights or regulatory safeguards, and expansive manufacturing infrastructure established during its socialist past. The website for a China-sourcing specialist sells the country thusly:

"Why look at China? Obviously there are many countries other than China that are candidates for overseas sourcing. China, however, combines advantages that are unique to the world's most populous nation. These include: a. One of the world's lowest labor rates - Labor rates vary from about $100-$400 per month depending on the required skill. b. Abundant indigenous raw materials - Most raw materials you will need are available in China as native products. c. A huge well developed industrial base - China developed a highly self-sufficient industry. In the 1950s and 1960s, many large industrial facilities were built. From the perspective of a western observer there seems to be an amazing variety of factories that make the same kinds of industrial goods found in the U.S."

China provides the starkest example of the outcomes of race-to-the-bottom globalization. While global corporations made a pit stop in other low-wage markets like Mexico, China was different in that it not only had the capacity to manufacture components, but indeed required (prior to WTO membership) that foreign companies partner with local, state-owned enterprises that had been built up over decades and engaged in small-scale manufacturing.

Global manufacturing and retail corporations now use China as a staging ground to squeeze suppliers for ever lower costs. China's low wages certainly facilitate this trend, but the breakneck pace of China's economic growth – along with recent and welcome reforms to encourage labor rights – has put some damper on corporations' ability to keep China's wages permanently at half that of other countries. Thus Chinese suppliers are forced to cut costs in other ways; for example, of late through unsafe, lead-covered inputs into the production process for toys.

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