Was Opening Trade With China Wrong?

The Wall Street Journal has an excellent article by Bob Davis cataloguing the history of opening up trade with China. In it he asks the question was it a mistake for the U.S. to allow China to join the World Trade Organization? Or should we have blackballed it? Skeptics of the deal by which the U. S. didn’t veto China’s membership in the WTO of which I was one turned out to have been right:

Looking back now, whose expectations for the wider impact of the deal proved most accurate? On the issue of U.S. manufacturing jobs, critics made the right call. A study by the MIT economist David Autor and colleagues calculated that Chinese competition cost the U.S. some 2.4 million jobs between 1999 and 2011, battering factory towns that made labor-intensive goods.

That result haunts one of Mr. Clinton’s senior China negotiators, Robert B. Cassidy, who believes that his work only helped big businesses, not ordinary workers. “When you retire you like to think that you accomplished a lot,” he says now, at age 73. “What kind of benefit did I produce from working around the clock? I was incredibly disappointed.”

Nor did China open up politically, as many WTO advocates had hoped. Beijing tamed the internet by limiting its use to commerce, technology and social media. It blocked political organizing by threatening and sometimes jailing those who posted critical comments. More recently, it has turned the internet itself into an instrument of the state by using it to identify and track dissidents. “It’s Orwellian,” says Jerome Cohen, a New York University law professor and China specialist.

The article also confirms the points I have been making here for some time:

China never fully followed through on its WTO pledge to allow foreign banks to operate in its local currency. It also pledged not to force foreign firms to transfer their technology, but today about one in five companies—many in aerospace and chemical industries—say that they’ve been pressured to do just that in order to do business in China, according to a July survey by the American Chamber of Commerce in Shanghai.

Note that it is now nearly twenty years since the negotiations. The Chinese authorities obviously had no intention of opening their banking system. They bargained in bad faith.

I don’t think opening up trade with China was a mistake. It did too much good for too many people. But it was done too suddenly, without follow-through to ensure that the Chinese authorities lived up to their side of the bargain. It should have been done slowly, over the period of decades or even a century and each step in the process should have required specific actions by the Chinese. Opening up their banking system. Divesting the SOEs. Ending export subsidies. Ending import quotas and tariffs. Political requirements. Requirements for working conditions. Environmental requirements. Changes in their judicial system.

We needed to be more Confucian. If your plan is a one year plan, plant rice. If your plan is a ten year plan, plant trees. If your plan is a hundred year plan, teach children. We are too impatient. We’ve been so busy planting rice that we failed to take steps when opening trade up with China too far resulted in the loss of millions of manufacturing jobs over the period of less than ten years. We needed a hundred year plan.