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The Mistake that Changed History: Failed China policy reaches its 20th anniversary

September 23, 2020

Clinton's failed policy positioning China as world superpower

This month marks 20 years since the U.S. Senate voted to approve “normalized” trade with China. It was a mistake that now threatens to help position China as the world’s superpower.

[Michael Stumo | September 23, 2020 | Duluth News Tribune]

At the time, President Bill Clinton promised that open trade with Beijing would advance America’s “economic interests” and “move China in the right direction.” Clinton assured Congress this would be an effortless arrangement. Beijing would “open its markets,” and U.S. companies could “sell and distribute products in China … without being forced to relocate manufacturing to China.” Best of all, Clinton vowed, the United States would “be able to export products without exporting jobs” — thanks to “safeguards” against import surges.

Secretary of State Madeleine Albright praised the arrangement: “Economically, America gives nothing in this deal. … All we agree to do is maintain the same open markets and policies toward the Chinese products that have already expanded choices and lowered prices for U.S. consumers.”

It was an argument that persuaded Democratic senators like Joe Biden to vote for China trade. And even one year later, new President George W. Bush noted, “We trade with China because trade is good policy for our economy, because trade is good policy for democracy, and because trade is good policy for our national security.”

Twenty years later, we know they were wrong. America’s annual trade deficit with China has soared from $83 billion in 2000 to $345 billion in 2019 and cost an estimated 3.7 million U.S. jobs.

So much for Clinton’s pledge of “lowering the barriers that protect state-owned industries.” Shortly after joining the WTO in 2001, Beijing funneled $25 billion in direct aid to its steel industry. China also imposes a 10% average tariff on imports, far higher than America’s 3.4%, the lowest in the world.

Clinton said his deal would “strengthen the rule of law” in China. However, China is now ranked 88th globally for human rights, according to the World Justice Project. And Beijing continues to persecute religious and ethnic minorities, including more than 1 million Uighurs sent to “indoctrination” camps and forced labor since 2017.

China also remains closed to U.S. exports, with American companies still facing significant market barriers as well as piracy and intellectual property theft. Chinese companies have stolen proprietary U.S. technology for nuclear power generators, solar cells, internet software, and internet hardware. It’s estimated that 20% of the wind turbines deployed in China today contain stolen software. And a 2018 federal investigation concluded that China continues to acquire key U.S. assets through intellectual property theft and repeated cyber intrusions while U.S. companies lose more than $350 billion annually due to forced technology transfer.

China’s rise has also come on the back of planet-altering environmental practices. Each year, a massive brown cloud of soot and debris drifts east from mainland China. And Chinese factories spew an estimated 40,000 tons of ozone-depleting carbon tetrachloride into the atmosphere annually, in violation of international agreement.

The impact on America’s industrial security has been devastating. In 2000, the U.S. enjoyed a $5 billion annual trade surplus in advanced technology products. By 2019, that had shifted to a $133 billion yearly deficit. And Beijing has launched a “Made in China 2025” campaign to overtake key industries, including information technology, robotics, aerospace, electric vehicles, medical devices, wireless networks, and renewable energy.

How did Clinton, Bush, and company get it so wrong?

They assumed that the same principles that guide western economies would also prevail in China. But China is a state-managed economy, and it refuses to follow traditional western parameters. This is evident in the massive banking programs that continually flood China’s economy with newly issued money, continuous lending, and debt forgiveness. Beijing does this simply to grow domestic industries and achieve nationalistic aims.

What Clinton and other Washington elites overlooked is that the bulk of China’s 1.3 billion citizens would not become consumers of western goods. The average Chinese agricultural worker earned roughly 36,500 yuan in 2018, the equivalent of $5,300 in the U.S. Beijing’s state-run economy views this citizenry as part of a machine to churn out exports but not consume imports. And Beijing hardly welcomes two-way trade that could prove mutually profitable.

Today, China is not a democracy — and not a capitalist country. Beijing expects western economies and institutions to bend to its vision. Washington must finally grasp the full extent of this win-at-all-costs strategy. Neither trade intervention nor the World Trade Organization can provide a “level playing field” in the face of such massive subsidization. In order to correct the mistakes made 20 years ago, the U.S. must begin to decouple from China rather than enable its ongoing rise.

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