For U.S. and China, stakes of trade high

WASHINGTON — WASHINGTON -- If Congress approves a sweeping new trade agreement with China this month, the price in Guangzhou of a Caterpillar D-11 earth mover, made with tank tracks and an 850-horse engine in Peoria, Ill., will fall by $60,000.

Whether the agreement will also nurture Chinese democracy and advance world peace is another matter.


But the Clinton administration's proposal to grant permanent normal trading relations to China is seen by backers and opponents as transcending the arid commercial details of its text. The decision on the measure could also shape the social and political future for 1.2 billion Chinese, both sides say.

The administration is pushing the trade deal, to be considered by Congress the week of May 22, as a way for the United States to reap the benefits of China's impending entry into the World Trade Organization. The pact would cut Chinese import tariffs for many U.S. industrial and agricultural products and allow American insurers and telephone companies to buy stakes in their Chinese counterparts.


A diverse coalition of liberal labor groups and conservative Republicans passionately opposes the agreement. It would cost American jobs, these groups argue, and aid a brutally repressive Beijing government.

"We think it will open up the floodgates" for U.S. job losses, said Mark Levinson, chief economist for the Union of Needletrades, Industrial and Textile Employees. "It gives us the right to sanction China for some of the worst human rights and worker abuses in the world."

Proponents -- another eclectic band, made up of big-business interests and moderate Democrats and Republicans -- argue with equal fervor that enhanced trade with China will benefit U.S. workers, help raise millions of Chinese out of poverty and plant the seeds of democracy in that country.

"Free trade, resulting in market reform, will make the conditions for democracy much more favorable in China," said Brink Lindsey, director of the Center for Trade Policy Studies at the libertarian Cato Institute. "Bringing China into the World Trade Organization is the best single way we can exert influence on China in a positive direction."

The vote on permanent normal trading relations, sometimes referred to as PNTR, is expected to be extremely close. Each side predicts victory, though lately the momentum in Congress has shifted in favor of the pro-traders.

Much is at stake. The proposal touches many of the political issues guaranteed to stir emotion and goad opinion: jobs, human rights, corporate profits and democracy.

Many liken the deal to the landmark North American Free Trade Agreement, which was passed in 1994 amid much acrimony and dismantled commercial barriers with Mexico and Canada.

But for all of NAFTA's significance, the China agreement looms larger. This time, the U.S. negotiating partner is 10 times as populous as Mexico and Canada combined, possesses nuclear weapons and has lately been threatening Taiwan, a stable democracy and U.S. friend.


The China deal, signed by the Clinton administration in November but requiring Congress' approval, is seen as a critical test for global trade generally. Passage is a requirement for the United States to enjoy the full benefits of China's entry into the WTO, which is expected in the next year or so.

Approval by Congress would imply that the recent popular protests against the WTO, the World Bank and the International Monetary Fund were relatively minor potholes on the road toward expansion of international business. On the other hand, the measure's defeat in Congress would embolden opponents of globalism and could affect U.S. politics in the November elections and beyond.

"You're seeing real concern inside the Democratic Party that they will be labeled the party of protectionism if they don't let this thing pass," said Peter Morici, a professor at the University of Maryland and former chief economist for the U.S. International Trade Commission. "You're seeing a struggle for the future leadership of the party."

Model in Taiwan

Supporters of the China measure point to hundreds of studies showing the close relationships between trade growth and rising living standards, longer lifespans and other improvements in human welfare. And they assert that a growing middle class of Chinese workers, traders and small-business owners will generate internal pressures for political reform.

Their favorite case study is Taiwan, whose transformation from dictatorship to democracy has occurred simultaneously with its integration into the global economy.


"It is my strong conviction that approval of PNTR and accession to the WTO will make China more likely to emerge as a more open, stable, cooperative nation that plays by the rules of the international system and provides greater freedom to its people," White House national security adviser Samuel R. Berger said last week.

Though Beijing has broken trade promises in the past, Berger and others maintain that its overall record of observing international agreements is good and that membership in the World Trade Organization would add pressure for it to play by global rules.

Economic benefits

At the same time, proponents say, permanent normal trade relations for China would benefit the United States economically.

As billions in imports demonstrate, America is wide open to Chinese products. But a high wall of tariffs, quotas and other restrictions helps prevent U.S. companies from selling products to the Chinese and from investing in Chinese businesses.

As imports from China have increased fivefold in the past decade, to $82 billion, U.S. exports to China have only doubled, to $13 billion. The Clinton administration's trade deal, proponents say, would boost U.S. exports.


"China is the one making all the concessions," said Myron Brilliant, a lobbyist for the U.S. Chamber of Commerce. "On the U.S. side, we have nothing to do other than to pass PNTR to secure the benefits."

Lower trade barriers would promote sales of U.S. products in China, such as Caterpillar's heavy equipment, which would become cheaper for Chinese buyers as tariffs were reduced. At the same time, pro-traders say, relatively high U.S. labor costs would limit the American products that the Chinese could afford to buy.

American farmers would benefit perhaps more. Chinese import tariffs, for example, are 45 percent on beef, 40 percent on oranges and 25 percent on corn. All would fall by at least half under the agreement and would be subject to negotiation for further reductions in the WTO. Agriculture products do not carry the high labor costs of American-made items.

Fear of backlash

Many American executives fear that a rejection of the trade pact would spur a backlash from China that might hurt their business and open the door wider for competitors in Japan and Europe.

"The government and the people of China would see us as rejecting them," said Matthew McKenna, president of Jessup-based Baltimore Aircoil Co., which sells refrigeration equipment in China. "That could be detrimental to all U.S. company interests in China.'


Critics of the China trade proposal concede only a few of proponents' economic arguments and none of their political arguments.

Free trade won't strengthen democracy, they argue. The hard currency it generates, they say, would stabilize the regime that killed hundreds and perhaps thousands in Tiananmen Square, that persecutes the Falun Gong religious movement and that subjects Tibetans to third-class citizenship.

Seeking external pressure

The way to change China's behavior, they contend, is to withhold trading benefits - or threaten to - not to grant trading relations with few signs of political reform from Beijing.

Congress grants temporary normal trading relations to China once a year, ensuring continued access to U.S. markets for billions in Chinese toys, appliances, electronics and other items. Dropping that annual review, which is required under WTO rules, would eliminate a formidable tool for Washington to influence Beijing, critics of the deal say.

"We give them huge amounts of hard currency every year" by buying Chinese goods, said Charles McMillion, chief economist for MBG Information Services, a Washington-based consulting firm. "We have enormous leverage with China. In the WTO, we will give up access to those levers."


Opponents, including many labor leaders, also question the promises of economic bounty for the United States.

Stronger trading ties with Beijing will make U.S. executives more likely to set up China-based factories to take advantage of inexpensive labor there, they say, and shed American jobs.

Levinson, the union economist, argued that freer trade with China would induce economic trauma similar to that of NAFTA, after which the shifting of U.S. factories to Mexico helped wipe out nearly a half-million American apparel and textile jobs.

U.S. investment in the telephone, insurance and other industries in China isn't going to help U.S. workers, union leaders say.

"The people who are going to benefit are the people who want to open up China to service industries," said William Klinefelter, legislative and political director of the United Steelworkers of America. "Our exports are not going to go up because of these."