The Obama administration's decision to take up an investigation of illegal trade practices by the People's Republic of China marks another increase in tension between the U.S. and China. While the choice reflects electoral politics, it does offer an opportunity for smarter conversation about trade -- if we can avoid the jingoism.
The investigation, to be led by the U.S. trade representative, Ron Kirk, comes under provision 301 of the 1974 Trade Act in response to a petition -- over 5,000 pages long -- from the U.S. Steelworkers' Union (USW). If Kirk finds violations, the United States will seek redress through the World Trade Organization, which could include new tariffs on Chinese goods.
The USW accuses China of violating a number of World Trade Organization rules to support its green-technology industry at the expense of the United States. These violations include restricting foreign access to key resources, discriminating against foreign firms and goods in Chinese markets, and directly subsidizing exports. All this, the Steelworkers said, has hurt U.S. jobs and market share in a sector that's important, at least cosmetically, to our economic future.
It's hard to measure the detrimental effect of these actions, but the Economic Policy Institute in Washington has tried, calculating that 8,000 jobs were lost this year thanks to the trade policies. The institute's research indicates that in 2009, thanks in part to the recession, the U.S. trade deficit with China and the rest of the world declined -- except in the clean-energy sector, where our trade deficit with China is on track to exceed that of every other green-tech producer in the world.
Free-traders and Chinese officials are calling foul, blaming the investigation on partisan politics: Democrats in electoral peril need the unions on their side, and opinion polls indicate Americans pin our economic woes on free trade and outsourcing: 68 percent blame U.S. job losses on outsourcing.
"The rationale is for us, very, very clear," Leo Gerard, the USW's president, told reporters when the case was filed at the beginning of September. "It's about China's illegal behavior in a number of areas that has cost the current American workforce thousands of jobs and is threatening the future of American manufacturing in the renewable-energy sector."
Gerard is right, but so are his critics. The investigation into bad-faith trade practices is warranted under trade law and is in the interest of union members, but it also plays into the Democrats' political strategy. Democrats are running ads hitting independent Republican groups for accepting foreign donations, including corporate donations from China, and calling for an end to tax breaks, supported by the GOP, that give companies an incentive to ship jobs overseas.
The messy intersection of international trade, unions, big business, and partisan politics during an election year sounds like a recipe for counterproductive decisions, but it's also an opportunity to face up to some realities about trade.
Rebalancing is needed between the United States and our trading partners, especially China, if we want to get serious about jobs and growth. U.S. domestic politics are only part of the equation when countries like Thailand and Japan are also complaining about Chinese trade practices. As China expert Michael Pettis has written, "The numbers actually do not work."
Correction begins with currency revaluation to create export parity and also includes efforts to promote exports and saving domestically. Addressing China's behavior should involve WTO processes like those invoked by the Steelworkers. There's good precedent for this: In the past, presidents, including Ronald Reagan, used 301 authority to tussle with Japanese and South Korea over unfair trade barriers to good effect. However, changes brought about by any single investigation will take years and are likely to be minor compared to other efforts to shift trade policies.
Nonetheless, some say invoking 301 authority could cause an economically devastating trade war; indeed, Chinese officials have already complained. But we signed on to the WTO -- and asked China to do the same -- so there would be a venue to work out these disagreements without economic conflict. If invoking WTO processes will cause a trade war, why bother with the institution in the first place? If that's the position free-traders are taking, we have a much more fundamental problem.
Trade is not a zero-sum game, and, despite its challenges, global economic integration is a part of our future. Making China a colleague rather than a rival is among the United States' top international priorities. While trade with China has been an unequal proposition for Americans, it isn't the cause of our current economic woes. The nationalistic rhetoric now being pulled out on the campaign trail runs the risk of preempting analysis of the costs and benefits with distasteful fearmongering.
Which is why Gerard has it right: He knows that the future of American manufacturing -- and that of the workers he represents -- depends on fair access to markets for their products. That means we need a good relationship with emerging economic powers, including China, not an antagonistic one -- and not one where the United States is at a disadvantage. That's why the Steelworkers aren't just filing a petition to redress Chinese violations -- they're also partnering with a Chinese firm to ensure that American parts are used to build a wind farm in Texas, and American workers can organize at a future factory in Nevada. The Steelworkers don't see any tension in the two efforts, and neither should anyone else.
