U.S. Debates Using Trade to Prod Beijing on Rights

WASHINGTON —  With ever-increasing frequency over the last few years, American shoppers who study the labels on low-priced consumer goods have been reading the words: Made in China.

Chinese toys, clothes and shoes have been flooding into the United States. During 1989, the same year in which Chinese troops crushed the pro-democracy movement in Beijing, China’s exports of footwear to the United States doubled, and its exports of toys, games and sporting goods shot up 62%.

Watching television at home, Americans reacted with horror at the sight of Chinese tanks deployed in Beijing. When they went out to the store, they bought Chinese-made running shoes and Chinese-made Cabbage Patch dolls.

Now, President Bush and Congress are about to tackle the most significant and far-reaching issue they have faced in setting U.S. policy toward China: whether to try to use America’s unmatched buying power as a lever to prod the Chinese regime into easing its repressive human rights policies.

The United States will soon face its annual decision on whether to renew China’s most-favored-nation trade preferences, the privileges that allow China to export its goods into the United States under the same low tariffs that are available to most other U.S. trading partners. Bush is expected to notify Congress formally within the next few days of the Administration’s plans to continue China’s trade benefits.

But Congress could move to cut off the benefits. And last June’s massacre in Beijing, and the political crackdown that followed it, have prompted a growing number of lawmakers to ask why the United States should do China any favors on trade.

On Friday, Senate Majority Leader George J. Mitchell (D-Me.) urged Bush to revoke China’s trade benefits. Rep. Sam Gejdenson (D-Conn.), chairman of the House Foreign Affairs Subcommittee on International Economic Policy and Trade, agrees.

Most-favored-nation status “puts the U.S. in the position of bending over backward to accommodate a government which has locked up hundreds, and maybe thousands, of Chinese prisoners of conscience,” he says.

The dispute represents a significant racheting-up in the tensions between the two countries.

Last January, when Bush sparred with Congress over U.S. policy toward Chinese students, the issue was largely symbolic. Both sides were willing to let Chinese students remain in this country; the only question was whether to do so by act of Congress or a presidential order.

This time, by contrast, the stakes are huge. Cutting off China’s trading privileges would have a serious economic impact, not only on China itself but also on the British colony of Hong Kong, on American firms doing business with China and--at least temporarily--on American retailers and consumers.

“Whether the United States maintains China’s (most-favored-nation) status is one of the most important foreign policy decisions our government will make this year--and certainly the most important with respect to China,” says Rep. Stephen J. Solarz (D-N.Y.), chairman of the House Foreign Affairs subcommittee on Asian and Pacific Affairs.

China first won most-favored-nation status in 1979, the year that President Jimmy Carter re-established diplomatic ties with the Communist regime in Beijing.

Over the last decade, U.S. trade with China has grown from about $2 billion in 1979 to almost $18 billion last year. While exporting clothes, toys and shoes to the United States, China buys American machinery, grain, airplanes, fertilizer, cotton and timber.

Recently, China has been selling a lot more to the United States than it has been buying, sending America’s trade deficit with China to $6.2 billion last year--much higher than ever before.

The Chinese leadership, facing a severe economic slump at home, now worries that if the United States revokes China’s trade status, it could lose what has become both its largest and its fastest-growing export market. Without that status, the average U.S. tariff on Chinese goods would rise from about 9% to more than 50%.

A senior Chinese trade official estimated last week that loss of U.S. trade preferences would cost China $10 billion a year in export earnings. “We are very concerned that the good economic and trade relations the two countries have established over the past 10 years could be destroyed,” said Shen Jueren, vice minister of China’s Ministry of Foreign Economic Relations and Trade.

In the congressional debate, the most contentious issue is whether the denial of most-favored-nation status would help or harm the forces inside China that are pressing for democratic reforms. Many of those who favor extending China’s trade benefits argue that the impact of losing American export markets would fall hardest upon those parts of China that have already changed the most and are pressing for further reforms.

Roger W. Sullivan, president of the U.S.-China Business Council, claims that more than 50%--or about $6 billion worth--of China’s exports to the United States is produced not by the inefficient state-owned enterprises but by private entrepreneurs and foreign-backed joint ventures, which are resisting Marxism-Leninism. “What is the sense of a policy which would destroy that sector?” he asks.

American companies doing business with China say the loss of special trade status would create an entire series of new obstacles to their operations. Those who buy goods from China might have to find supplies elsewhere. Those who operate in China might be subject to retaliation by the Chinese. And China’s loss of the U.S. market would leave it with less foreign exchange to buy U.S. goods.

Finally, opposition to revoking China’s special trade status also comes from Hong Kong, which serves as a transshipment point for about 71% of China’s exports to the United States. “Taking (most-favored-nation status) away from China will destabilize Hong Kong,” John Kamm, president of the American Chamber of Congress in Hong Kong, told Congress.

But opponents of any extension dispute each of these contentions. Zhao Haiching, chairman of the National Committee on Chinese Student Affairs, argues that the benefits of China’s trade surplus go mainly to the Beijing regime. “While a tiny proportion of the trade surplus may trickle down to enterprises and local governments, the central government’s treasury is the real beneficiary,” Zhao says.

And both Gejdenson and Mitchell question whether Hong Kong might not be even more endangered if the Beijing regime wins the extension that it is seeking and goes away with the belief that it can do whatever it wants without paying a price.

For American consumers, a revocation of China’s trade status might mean some temporary price increases for toys, shoes, sweaters and other clothes, but experts say the long-term impact might not be great after U.S. retailers find alternative suppliers in other countries, such as Thailand, Malaysia or Indonesia.

Indeed, the U.S.-China Business Council’s Sullivan says this is already happening. Sullivan contends that the current uncertainty over what will happen with China’s trade benefits already is prompting U.S. middlemen to think twice about buying Chinese goods.

“I know of some people--who under normal circumstances would have placed their orders in April--who haven’t ordered yet,” Sullivan notes.