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Hype over China's trade benefits makes it destined to be disappointment

Ever since the end of the Cold War, the United States has searched for an organizing principle for its foreign policy. We seem to have found one in trade. It promotes political as well as economic progress. It pries open closed societies, lifts the poor into the middle class, creates pressure for democracy and _ by binding countries together commercially _ reduces the odds of war. The Clinton administration, an ardent advocate of this theory, has applied it most energetically to China.

This is the essential context of the congressional vote (expected this week in the House of Representatives) on China's trade status. It is, in some ways, a no-brainer. Clinton's request that China receive "permanent normal trade relations" should be approved. The trouble is not the policy but how it's been sold. It has been merchandised so aggressively and loaded with such extravagant expectations that it seems doomed to disappoint.

Under "normal trade relations," China would enjoy the same low tariffs as other U.S. trading partners. It already does, but now Congress has to reapprove the tariffs every year. Clinton would dispense with this annual ritual as part of China's entry into the World Trade Organization, which sets global trade rules.

To gain WTO admission, China made many trade concessions. It will cut tariffs on U.S. industrial goods from about 25 percent in 1997 to 9 percent by 2005; most import quotas (on, say, fiber-optic cable) would end; restrictions on foreign investment would be relaxed. In return, all the United States does is to make its low tariffs permanent. This is a routine benefit that WTO members extend to each other.

The main argument for refusing it to China is that annual congressional review of tariffs creates "leverage" to promote better human-rights policies. Unfortunately, the leverage is slight. Even after the Tiananmen Square massacre in 1989, Congress renewed the low tariffs.

We must deal with China on many issues: Taiwan, the Korean Peninsula, nuclear nonproliferation, the environment, as well as trade and human rights. For Congress to reject Clinton's request would signal unmistakable hostility. There would be a harsh anti-American reaction in China. Our relations would deteriorate for no obvious gain. The harder question is whether trade can make her a friend. The Clinton vision is that China will become a richer, consumer-driven society. WTO membership will promote the rule of law. The advance of middle-class pleasures and the decentralization of production will weaken communist control and lead to more democratic government.

This pleasing vision is plausible. But it may also be a fantasy. Clinton's vision rests on optimistic assumptions: that consumerism dilutes nationalism; and that China's internal problems don't neutralize the benefits of trade.

One obvious problem is China's economy. It grew 7.1 percent in 1999, but this was the seventh consecutive year of progressively slower growth, reports economist Nicholas Lardy of the Brookings Institution. Moreover, the growth figure is artificially bloated, because it includes a huge buildup of "unsaleable inventories ... of low-quality goods for which there is little or no demand." Many inefficient and unprofitable state-owned companies will have to be streamlined or closed. Unemployment and labor unrest are already rising.

Joining the WTO should, on paper, lead to more imports, which would worsen unemployment and the losses of state-owned companies. The AFL-CIO _ an opponent of PNTR _ fears an alliance between China and multinational companies: The companies invest in China as an export platform; in turn, growth of its export industries, while minimizing unemployment there, raises it here. Starting in 1994 China's trade surpluses have risen sharply.

None of this matters much while the U.S. economic boom continues. But should it falter, the immense U.S. trade deficit with China ($69-billion in 1999) could easily become an inflammatory issue. The larger tension involves expanding trade with a country whose values and interests differ so much from ours. The kind of social transformation that Americans imagine will take (at best) decades.

In the Cold War, we generally traded with democracies and military partners. This is no longer true. Coexisting with China is a great imperative of the 21st century. But American foreign policy must enjoy public understanding. In building support today for a sound policy, the White House has made it seem better than it is _ and may be inviting a backlash tomorrow.

Robert J. Samuelson is a columnist for Newsweek.

Washington Post Writers Group

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