More Information on U.S. and China “Trade” Policies

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As we predicted when we opposed a U.S.-China bilateral trade deal setting terms of China’s World Trade Organization (WTO) membership and the related grant of Permanent Normal Trade Relations (PNTR) to China in 2000, the current rules have resulted in massive U.S. job outsourcing and the loss of five millions U.S. manufacturing jobs. Absent new rules that end Chinese currency-related trade cheating and condition trade access on a floor of basic human and labor rights and environmental standards, job outsourcing will likely continue. Even those who supported the old policies now admit that the resulting “China shock” cost millions of American jobs, pushed down U.S. wages and devastated many communities.

The corporations and think tanks pushing for the U.S. Congress to grant China PNTR status and entry into the WTO argued that this would open the Chinese economy and its massive market to the world, while creating a dynamic internally that would lead to improved living standards, human rights and freedoms for the Chinese people. Instead, China became the world’s factory. The Chinese government held down currency values to gain trade advantages and offered billions in subsidies, dumping billions of goods in the U.S. market and attracting many multinational firms to relocate production from the U.S. to China. Millions of Chinese were lifted millions ourof dire poverty, but human rights and freedoms have deteriorated and independent unions and the right to fight for better wages has been entirely forbidden.

Under our current policies, the U.S. trade deficit in goods with China grew to over $400 billion. The United States buys $4 worth of goods for every $1 it sells to China. Economists link to the loss of five million U.S. manufacturing jobs. Despite his campaign pledges, under President Trump the U.S. deficit with China had risen by 13 percent to the highest ever recorded by 2019. And, Trump’s Treasury Department has failed to utilize a critical tool to stem record-setting trade deficits: ending currency manipulation that makes foreign goods artificially cheaper than U.S. goods. Despite a promise to remedy this problem on day one, instead, Trump has chosen to rely on criteria created by the previous administration that ensure no action is taken.

Contrary to promises of PNTR suporters that China would liberalize its economy, the Chinese government has remained largely in control. According to Public Citizen’s database on the footprint of Chinese investment in the United States, Chinese financial interests acquired more than $140 billion of assets in the U.S. economy from 2002 to 2017, and government-connected private sector firms account for over 60 percent of this activity. China has invested in U.S. sectors increasingly aligned with its industrial policy goals. A U.S.-China bilateral investment treaty negotiated by the Obama administration that was never signed would have granted similar rights in the United States to these Chinese government investors like those granted to foreign investors under the original NAFTA.

The Trump administration has promised to overhaul the U.S.- China trade relationship, and has initiated negotiations and imposed penalties for trade cheating that are the most extensive undertaken and, if successful, could make a difference. However, the administration’s approach in part focusses on demands that could make it more appealing for firms to outsource more production, including ensuring better protection of foreign investors and their intellectual property in China.  Little attention is being given to China’s continuing violations of basic human and labor rights and environmental destruction that incentivize outsourcing. The United States has imposed steel and aluminum tariffs on both China and other countries to target a glut of Chinese-subsidized products on the world market. It has levied additional tariffs on Chinese imports to compel China to improve its business environment for U.S. firms. So far, what is missing is any attention to ending the race to the bottom in labor and environmental conditions that prompted global manufacturers to outsource jobs to China to pay workers poverty wages, dump toxins and bring their products back here for sale.