The news that China’s economy is on track to overtake the U.S. economy this year must have put a grin on one American’s face: Bill Clinton. It was his efforts at the end of his second administration that opened U.S. markets for Chinese imports. But is Hillary smiling? I’m not so sure.
Under a prior system of rules that apply to communist countries, if the United States had found China to be exporting goods in an unfair manner (e.g., special export subsidies to artificially lower prices), we could respond unilaterally by raising import taxes (tariffs) on Chinese products. This was a relatively simple system of retaliation largely because it was unilateral.
Enter Bill Clinton. Seeking a legacy for the end of his presidency, he pushed to have China become a member of the U.N.’s World Trade Organization (WTO), and to have U.S. trade disputes with China arbitrated by this multilateral organization. Consequently, China was no longer subject to U.S. unilateral action under our trade rules.
President Clinton’s pitch was that WTO membership would make China play by the rules, lessen governmental interference in its exports, and open up vast markets to U.S. exports. History has shown otherwise.
In a recent op-ed in the New York Times, Harvard Law professor Mark Wu says the WTO gives China a “free pass” to break the rules in a trade dispute – as long as it promises to end its rule-breaking after a “reasonable period.” Mr. Wu says this free pass approach allows China to make strategic decisions “to advance other unfair and illegal policies when the gains are large enough.” After all, just what is a “reasonable period”? One year? Five years? Thirty?
So much for Bill Clinton’s promises about China ‘playing by the rules’ and reducing governmental interference in exports.
What about U.S. exports to China? President Clinton said they were going to boom.
According to the U.S. Census Bureau, in 2013 our trade deficit with China hit a record high at $318.4 billion, with imports from China at $440.4 billion. U.S. exports to China also hit a high at $122 billion, but frankly, in light of our import situation, it’s nothing to brag about.
According to the U.S. International Trade Commission data, our top exports to China in 2013 included various agricultural products (mostly oil seeds, seeds, and fruits) at $14 billion, aircraft and aircraft parts at $12 billion, nuclear reactors and related parts at $11 billion, and vehicles and parts at $10 billion. By the way, we exported $4 billion of paper scrap waste (probably the stuff in your recycle bin). U.S. cotton exports amounted to $2 billion.
Meanwhile, last year’s top U.S. imports from China included: electronics at $116 billion, nuclear reactors and parts at $100 billion, clothing at $31 billion, furniture at $24 billion, toys and games at $22 billion, and footwear at $17 billion.
So much for those huge U.S. export opportunities in China.
If you’re still not convinced that Bill Clinton’s actions changed the trade game with China, check out this graph from the Economist. China’s economy was already on the upswing by the time it became a WTO member, but as the chart indicates, around 2005 its growth curve started getting steeper, and has become more so in recent years.
Why is this a problem for Hillary? Let’s go back to those import numbers, especially for furniture. Not long ago, America had a thriving furniture industry, especially in states such as North Carolina and Indiana. Today if you visit a big box wholesaler or furniture retailer, you’ll notice that much of what’s on display has been made in China – including wooden playhouses for children!
If Hillary wants to hold her husband’s hand and imply her presidency will mirror Bill’s, how will she explain to unemployed furniture workers that it was good policy to send their jobs to China?
Further, how will she spin the fact to American voters that, thanks to her husband’s actions on behalf of China, their economy is about to surpass ours?
Finally, here are my two questions for Republican presidential hopefuls: First, what are your realistic plans to bring manufacturing jobs back to America? Let’s be clear: “realistic” does not involve filing more trade complaints with the WTO – Mark Wu has demonstrated that’s pointless.
And second, are you, the candidate, willing to do something that will incur a backlash from China (such as banning imports of poultry products)? Or will we have to settle for strong rhetoric but weak actions? Thousands of unemployed Americans are waiting for an answer.