China's Permanent Normal
Trade Status
Missing the Point
by William R. Carr
On the 24th of May (2000), the Clinton administration got its wish for Permanent Normal Trade Status for China. (At least the China Trade Bill has passed in the House of Representatives, and will now likely breeze through the Senate.) Both sides in the issue debates, however, conveniently miss the real point. Arguments pro and con were narrowly focused. China isn't really the issue at all (or at least shouldn't be) -- the real issue is much more fundamental.
In any case, nothing is really changed by the enactment of PNTS. China has enjoyed "Most Favored Nation" trade status for years, and we're already big-time China-trade junkies. Already it seems difficult to buy anything that isn't "Made in China." Without Chinese imports, many of our largest corporate retailers and discounters would be in serious trouble. Wall Street might even hiccup and collapse. We are already very dependent on China as one of our primary producers of industrial and high tech consumer goods -- and Washington has made sure that China is also up and coming as a major global military power.
The real issue with PNTS, as with any and all nations, is the philosophy (now national trade policy), which favors international mercantilism over all else -- empowering international capital at the expense of labor everywhere (but most especially in the developed nations). It is the notion that trade across oceans and borders, rather than local production for local consumption, is the primary wealth-producing instrument of commerce. It is the notion that economic interdependence is inherently superior to economic independence.
The significance of the China-specific trade debate cannot be under-estimated however. China is potentially the world's largest market, and this is the basis for favoring big, bad Communist China in preference to, say, little old, comparatively benign, Communist Cuba. (But communism no longer has a great deal to do with the debate [except among the U.S. Cuban population]. Only money and profitability count -- so forget human rights issues.) International capital can overlook locking Cuba out of our trade window for the time being, but can't overlook China. So, for the purpose of making my point, we will focus on China as if it were our only trading partner. To illustrate the larger issue, let's look at the utopian mercantile potential of our China trade.
China alone has the potential to satisfy literally all of our industrial production needs at a fraction of the cost of production in the United States. Thus China can potentially spare Americans the necessity of producing for themselves. Americans need no longer toil in factories, and Chinese imports are so cheap in the market-place that (apparently) few Americans miss their lost factory jobs. Chinese production is, and will continue to be, so comparatively cheap, that it allows multiple layers of traders, shippers, and merchants to profit handsomely in the trading process. This system favors the "middle-men" but not the true producers of wealth.
While becoming America's primary industrial producer, China also has the potential of consuming most of America's raw material and agricultural production. This is the great "export" boom carrot held out to American consumers and producers as the benefit of free trade. There will allegedly be a boom in export-oriented jobs to replace lost industrial production jobs. However, this is a dangerously false promise to American labor and agricultural producers. China will purchase only the raw materials that it actually needs, and only at the lowest possible international prices. No matter how low those commodity prices may be, or how low they may go, the profit for multiple layers of traders, shippers, and merchants must be inviolable. The giant commodity traders will be assured profitability. Labor, and the farmer will not be assured profitability. As always, they will be required to absorb all the short-falls in income. Their only recourse lies in enhancing "efficiency" of production. Efficiency basically means cutting more labor out of the production processes, i.e, more job loss.
Additionally, China will be increasing its own production for its own markets as it increases its export market production. American commodity producers and the American farmers who come to depend on the Chinese export market will be hostage to these perennially low prices combined with the many other vagaries of the international marketplace. As usual, many will be only a small market price drop from bankruptcy.
The fallacy of free trade is that it assumes that trade is inherently good in and of itself. But trade is good only when it is mutually beneficial to trading partners, and neither is cheated. Who are the trading partners benefiting from Sino-American trade? Is it the Chinese and American people, the Chinese and American government, or Chinese and American capital? It's a little of all three, of course, but a whole lot more of the latter, and labor (both Chinese and American) who will be short-changed or cheated in the end. There is no trade without the middlemen, and it is only the middle men (who control pricing), who are assured a profit -- not the laboring producers.
Remember, trade doesn't add value to products traded -- it adds costs. Those added costs are profits to middlemen and usually cut into the wages of labor producers at both ends of the trading process. In the case of widely differing wage levels between trading countries, as between China and the United States, the natural tendency of markets shifts production to the low wage country and consumption to the high wage country. In the fullness of time, the process will tend to equalize wages and living standards in both trading nations.
Given the current living standards in China, and those of the United States, combined with the comparative populations of the two countries, the long-term "normal" living standard which can be expected to evolve will be heavily weighted in favor of the level of the Chinese standard. One can look at it as Chinese labor moving on up as far as the former income of down-sized American labor can take it, and American labor moving on down, until it finds itself on a level playing field, and able to compete with its Chinese counterpart. Looked at in another way, the American will be the primary consumer of Chinese production until prices have hit a level where the Chinese consumer can compete with American consumers in the marketplace.
While Chinese consumerism, wages, and living standards may rise somewhat, they will be artificially suppressed in order for capital to perpetuate the profitability of selling into the American marketplace. It goes without saying that the American consumer's ability to buy will slowly be eroded as his income declines. This erosion will be partially offset by a continuing effort to deliver consumer goods at even lower prices. This, of course, will in its turn adversely effect Chinese Labor, preventing it from maturing into the consumer society free-trade advocates like to predict. But in any case, profitability is always built in for the traders, no matter what the lot of the general population happens to be.
Assuming an eventual level playing field, with equal production, consumption, and living standards in both nations, most trade would become totally unnecessary. However, given the "trade is good anyway" philosophy, the Chinese would presumably continue to produce our computers and other consumer goods and we'd produce theirs -- so the traders wouldn't have to find other employment in a changed world.
In the much shorter term, we are moving from being a producing nation to becoming strictly a consuming one, and our raw materials exports are deeply discounted to the world. The dirty industries, and "undesirable" jobs are going to China. And those who have never had to get their hands dirty rejoice at the prospects for a cleaner environment here -- at the expense of China's environment. Americans, of course, are now supposed to make their living in high tech fields or "money and finance" -- and as "knowledge workers". Americans will be the "techies" and the Chinese "our industrial labor force." That, of course, is a laugh. High tech industries are much more easily exported than heavy industry, and training is increasingly as available overseas as here. Some industries and jobs now only require a modem to be exported, and its already happening in a big way.
Meanwhile, the likes of ADM ("Super-market to the world"), and a raft of large commodity traders, will "feed the world," farming millions of acres with a few large machines, millions of tons of chemicals, computers, and joysticks -- and fewer and fewer independent farmers. Remaining American farmers who have bought into the export boom (boom-doggle) notion, have some more lessons coming. If they aren't making money in the commodity futures markets, they can continue to look forward to farm foreclosure. And that's part and parcel of current global free-trade policy -- leaving ownership and production to fewer and fewer corporate big boys.
As a merchant mariner, I cannot neglect pointing out that, despite the huge volume of our current lop-sided trade with China (and elsewhere), and its equally huge freight costs, American ships carry such a small percentage of the trade that it can hardly be factored into the economic equation as one of the benefits of the China (or global) trade. The only way to avoid being cheated on every single trade item would be for American ships to carry about half of the trade, and thus at least break even on freight costs -- but that painful and embarrassing truth has been lost to the gurus of globalism currently formulating national policy.
America has effectively ceased to have a merchant marine of its own. Most of America's few remaining commercial merchant ships, including its government subsidized Maritime Security Fleet, are now owned by foreign corporations. Most of the freight revenues generated by what are supposedly American ships in foreign trade are collected by the foreign competition!
Free trade is not free trade a all -- and herein lies the big deception. Once a nation signs onto the new-style globalized free trade agreements (under UN/WTO supervision), it is no longer free to trade according to its best national interests (i.e., in the interests of its own people), it is thenceforth forced to open it's markets for better or worse. But current free trade agreements are intentionally weighted in favor of developing nations, which continue to have more latitude in pacing the rate at which they open their markets. Thus they can industrialize at the expense of industrial labor in the developed nations. Most other nations can literally flood our markets with their exports (and we're glad of the cheap prices at the chain stores), but pick and choose what they want to import from our producers. Meanwhile, the surviving producers in developed nations are forced to cut production costs (of which labor is a major part), in order to "remain competitive in the new international marketplace".
Ultimately, of course, the power of markets is a numbers game based on population. Our odds of coming up a winner, vis-a-vis China in the long run, are about 1,200,000,000 to 300,000,000 (or 4 to 1) in China's favor. If all the hype about equality and justice has any basis in truth, then we can look forward to the day when one Chinese consumer-producer consumes and produces exactly the same amount as one American consumer-producer, and lives just as well. Four to one odds say that, over the long haul, working Americans (but not those on the corporate gravy train) will have to reduce their living standards by about 75%.
Of course this is all over-simplified to make my basic points come clear in terms of simple figures, particularly with regard to the potential of our China trade. There are many other forces and factors at work in today's vast and complex global economic and social environment. Right now, in spite of our comparatively small population, the United States is the biggest player in the game of globalism. Ultimately, however, China is destined to be the biggest player. She is only now coming out of over than two millennium of slumber.
27 May, 2000
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