Unfair Trade Hurts Ordinary Workers in Both China and the U.S.

Jianli Yang & Lianchao Han February 23, 2017 4:00 AM

President Trump’s views on China are ridiculed by China hands and foreign-policy pundits because they stray from the last 25 years of conventional wisdom about the PRC. But there is much more to his perspective than meets the eye. As Chinese dissidents, we have been closely tracking China’s political and economic development, and we believe the president has hit on something that has long been ignored by many policymakers as well academic researchers.

First, a little history. Let’s go back to the most important reference point for studying contemporary China: the 1989 massacre of pro-democracy activists in Beijing’s Tiananmen Square. The hundreds of activists killed in the massacre and the thousands of others who stood with them were protesting against government corruption and for Chinese freedom. Their bloody end at the government’s hands created a strong sense of disillusionment with politics among ordinary people. It also created a sense of fear within the Communist regime, which had never faced such a strong liberal challenge to its authoritarian leadership. The early signs that the Soviet Union was beginning to disintegrate gave regime officials even more reason to worry.

Less than three weeks after the massacre, when China’s leadership was least assertive and most susceptible to outside pressures, President Bush secretly sent National Security Adviser Brent Scowcroft to meet with Deng Xiaoping. The meeting, later made public, did not seem to bring about any tangible results for either side. But it had the unfortunate effect of assuring China’s leaders that the U.S. intended to continue normal relations with their repressive regime even without concessions to the protestors or atonement for their murder. At a moment when the U.S. should have stood strong against Chinese oppression, the president chose to project weakness instead.

During the 1992 U.S. presidential campaign, Governor Bill Clinton harshly criticized Bush for “kowtowing” to China, echoing a not-uncommon conservative critique of the American response to the Tiananmen massacre. There was a vigorous debate over whether to continue linking China’s Most Favored Nation (MFN) trade status with its human-rights improvements. But one year after assuming the presidency, President Clinton reversed the policy on the theory – widely supported by American corporations, columnists, pundits, and lawmakers – that robust trade would inevitably result in prosperity and the growth of the Chinese middle class, which would in turn demand more political freedom.

Subsequent history has demonstrated the folly of this line of thinking.

With money and technology pouring in from the U.S. and other Western countries, the Chinese Communist regime survived the 1989 crisis and continued to thrive: The PRC’s explosive growth transformed it from one of the world’s poorest countries to the second largest economy on earth by nominal GDP. This extraordinary development came at no cost to the regime, which has remained as authoritarian as ever; China has consistently lagged near the bottom of leading indicators of democratic development in the last 25 years. And yet China’s middle class has largely been acquiescent to the one-party dictatorship and its gross violations of human rights.

What has gone wrong?

While Americans were debating China policy, Chinese Communist officials at all levels realized three realities: First, the party’s staying power has nothing to do with the Communist ideals to which it continues to pay lip service. Second, infinitely sustained economic growth is the party’s last, best hope to maintain its grip on power. Third, spoiling the elite in exchange for their loyalty helps stabilize the regime.

With its newly gained economic and military muscle, China has become a predator state on the world stage.

With this understanding, officials began spending most of their energy beefing up GDP, engaging in power arbitrage, bribing their superiors, and seeking luxurious personal perks. As a result, the Communist party elite, who used to label themselves “the vanguards of the proletariat class,” either turned themselves into get-rich-overnight capitalists or became patrons and backers of other domestic and foreign capitalists. These new Chinese “entrepreneurs” would go to any lengths to seek out someone in power who could help them grab market share without fair competition. They also used their political connections to shed any and all legal and social responsibility for paying fair taxes, protecting the environment, and ensuring safe conditions for workers.

Meanwhile, low human-rights standards, low wages, lack of environmental regulations, and the illegality of collective bargaining combined to create a golden opportunity for speculative businessmen foreign and domestic. Meanwhile, in order to maintain stability, the CCP regime offered bribes to anyone and everyone of importance and influence in society. Such a policy of buying off potential opposition was quite effective in conjunction with the purges and persecution that followed the Tiananmen massacre.

Since it owed its success to its privileged relations with the regime, the burgeoning Chinese middle class could not be expected to protest this state of affairs with much vigor.

In short, over the past 30 years, Chinese power, capital, and intellect combined to form China, Inc., an alliance that has sustained the existing political order, dazzling the world with its wealth and might. That this economic growth has been built on the backs of more than a billion ordinary Chinese whose standard of living remains shockingly low and whose basic rights are routinely disregarded troubles the country’s elite not at all. Why should it, when Chinese leaders are today among the most well-received, honored guests in a majority of countries worldwide? In the United States alone, the Chinese government and its surrogates have wide access to universities, think tanks, and media through which they can advance their opinions and rationalize their actions.

With its newly gained economic and military muscle, China has become a predator state on the world stage, aggressively grabbing resources and territories, rewriting international rules, and attempting to establish a new world order to rival the unipolar American one. The PRC’s increasingly aggressive posture, enabled by decades of stratospheric economic growth, has put the lie to the theory that increased Western engagement would produce a more responsible, and possibly even freer, China.

During the 2016 campaign, candidate Trump frequently complained that China was ripping off the U.S., echoing charges he’d first leveled at Japan in the late 1980s. He was widely mocked for these complaints, but he had a point.

In 1987, China’s trade surplus with the U.S. was only $2.7 billion, one twentieth of Japan’s. By 2016, the PRC’s trade surplus with the U.S. had reached nearly $400 billion, 150 times what it was three decades ago. Trade with the U.S. has helped China create the world’s second largest economy while modernizing its military into a formidable force with the power to capture America’s submarine drones in international waters, destroy America’s satellites in outer-space, and launch massive cyberattacks on America’s power grid and other critical systems.

The West accepted China into the regime of international free-trade agreements without requiring substantial structural reforms.

No doubt trade with China has benefited the American people by providing cheaper consumer goods. But these cheaper goods have come with a deeper price tag for the ordinary people of both China and America.

The West accepted China into the regime of international free-trade agreements without requiring substantial structural reforms. During China’s negotiations to join the General Agreement on Tariffs and Trade (GATT) in the 1980s and later the World Trade Organization (WTO) in the 1990s, Western powers relaxed their usual requirements by allowing China to keep its socialist system and public ownership largely intact while opening a regulated commodity market. Such a mixed economy has enabled China to take advantage of the free world and at the same time use significant non-tariff trade barriers, domestic policies, laws, and political institutions to protect its monopolies over the most lucrative industries and block competition.

What’s more, because China’s economic “liberalization” is not truly anything of the sort, real political liberalization has never followed. After more than 30 years of economic growth, China has not generated a viably independent middle class. Less than 11 percent of Chinese adults are considered middle class, according to the latest survey, and most of them belong to the ruling elite, detest democracy, and fear a true free market.

Meanwhile, America’s fast-growing trade deficit with China resulted in the net loss of about 3.2 million U.S. jobs between 2001 and 2013, according to the Economic Policy Institute. And even worse, China has effectively turned many American firms it does business with into its apologists and lobbyists stateside, where they argue against any U.S. attempt to pressure the regime on human rights. Beijing has also bought access to and influence on American academic, educational, and journalistic institutions, effectively silencing many of its American critics.

President Trump must keep his promise to be tough on unfair trade practices that harm America. With China currently relying on the U.S. and other big markets to keep its already faltering economy afloat, Trump has significant leverage, and he must use it to press for real Chinese economic liberalization, withdrawing China’s permanent MFC status and linking it to the removal of trade barriers and liberalization of all sectors, as well as to human-rights improvements. Workers in both China and America will thank him for the resulting improvement in their lives.