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http://www.chinadaily.com.cn/english/doc/2005-07/06/content_457693.htm

Does China Make US Reconsider Free Trade Policy?

By Cheng Dawei
2005-07-06

After experiencing a steel war, auto war and beef war respectively, global trade war has evolved into a tug of war over textiles in 2005. China assumes a key role in the ongoing trade war due to its increasing participation in the exports of textile products.

Chinese producers’ sophisticated ability to manufacture and export textiles gives rise to every-growing trade friction as well as every-rising vigilance from their American counterparts. China Daily quoted an article (China’s rise raises questions about free trade) in an American newspaper on June 16, 2005. This article adopts the pragmatic American view and argues that the United States should adjust its policy on free trade in view of China’s rapid rise.

After World War?,with the support of major developed countries, including the United States and other economic power across the world , the General Agreement on Tariffs and Trade(GATT)/the World Trade Organization(WTO) was set up.(WTO replaced GATT formally on January 1,1995.) The establishment of GATT/ WTO lays a solid foundation for the present-day world trade system which regards free trade as its ultimate objective. America is the primary beneficiary of this world trade system. A study from America shows, the living standards of American people has been raised by 10% or so. The United States has gained from the advantages brought by economic globalization, such as less expensive imported commodities, growing competition and scientific and technological upgrading.

The Untied States has also benefited from Sino-Us trade. China’s trade surplus with the U.S., which is likely to continue for many years, will not bring about devastating consequences or exert a damaging impact on US economy. Foreign-funded enterprises in China, which mainly contribute to China’s U.S.-trade surplus, have consistently accounted for a big chunk of China’s export volume, with a proportion of above 50%. Particularly, foreign-owned companies have paid the lion’s share 80% of the total export volume of China’s high-tech industries. For example, the export volume of personal computers in China amounted to 60 billions US dollars in 2004, and China retained its trade surplus. However,at least 3/4 of the profits of a computer goes to American businesses which research and develop software, design chip and sale the complete set of computer. The true story behind China’s trade surplus with the U.S. is that American businessmen have pocketed much of the earnings and Chinese manufacturers only have got modest economic returns.

China’s miraculous rise is attributed to globalization, trade liberalization and the thriving domestic market of the United States. Thanks to unremitting and dauntless efforts made by Chinese people from all sectors of the society, China’s economy is developing at a dizzying pace. Compared with other developing country, China enjoys a huge domestic market and its economy is of a grand scale. China has emerged as a world factory. The United States keeps up its guard against China’s fast-paced development with a sense of insecurity. So that the United States is seeking to hinder china’s rapid development and hold high the banner of trade protectionism.

Therefore, the question we will study here is whether a retreat to the trade protectionism is a wise choice for the United States? What are the implications of such an American approach on Sino-US trade as well as the world trade?

In fact, America has never given up or abrogated the policy of trade protectionism and free trade has never been virtually realized. The Industrial revolution broke out in the United States in the early 19th, in an effort to met the challenges brought by Britain industrial products and fueled the development of American homegrown industries. The United State raises its tariff constantly. American average tariff rate has rose progressively to approximately 40% in 1824 from the somewhere between 7.5%--30% in 1816. This proportion has also surged to 45% in 1825, posing another sharp increase. Thanks to the implementation of the policy of trade protectionism, American industry was far ahead of others within the global reach in the 80’ of the 18th.

Since China joined the WTO, the United States has adopted a tougher policy of trade protectionism towards China in a step-by-step fashion. A series of make-or-break measures have been outlined and adopted successively, for example The imposition of high duties on imported steel, anti-dumpling cases against China-made televisions and the imposition of quota restrictions on China-manufactured textiles. All of above-mentioned issues give full _expression to the fact that the United States has earnestly implemented a policy of trade protectionism.

The question we are facing is whether the surging American trade protectionism will lead the world economy and trade into a blind alley? Compared with the world of the late twentieth century, today’s world is far from stable and tranquil. For example, the international financial market is a fragile one, the WTO negotiations have almost reached a stalemate, multilateralism is porgressively being replaced by regionalism, competition among the economic powers in the global market is white-hot and the gap between the rich and the poor keeps growing day by day. How much the side effects of the rises of trade protectionism will add to the instability of global economy is still A mystery. However, we must be aware of the fact that trade war is emerging as an active factor.

Whether the implementation of the policy of trade protectionism will reduce the trade deficit of the United States and address the problems on its home front is still unclear. Trade protectionism is not at all a newly started thing and maybe not a panacea. The United States has been experienced in imposing safeguards on Japan-manufactured automobile. As a result, the pressure from the U.S. has forced Japan to become a heavyweight player in the international arena. Japan ends up with a world-top automaker.

The author regards free trade, the objective of WTO, as a mirage, and does not thing that free trade is achievable. However, the liberalization of trade may be achievable.

The competition between free trade and protectionism never stops and will run through the entire history of world trade. As China experiences rapid economic growth it is nature for the United States to adopt a policy of protectionism towards China.

China should be prepared for the adverse trade environment and the undesirable condition which is unlikely to take a turn for the better in the years ahead. Therefore, we ought to learn how to strive to survive under the every-increasing pressure.

When settling the trade disputes between China and the United States, America should seek to maintain the stability of world economy and safeguard our win-win situation. The United States should also be made aware that China will not cave in the face of American protectionism or be led by the nose. China, a world factory, will find a way out of the deteriorating trading climate. The United States desperately needs to have a better understanding of the fact that America benefits a lot through Sino-US trade. America will lose a low-priced suppiier base and a vast market, if America impairs and hurts its relations with China.

Dan Ikenson, an US trade policy analyst says, if the United States begins to impose tariffs and penalties on China, it would have a negative effect on consumers in the US. "It's just a rash idea that would be ruinous to our economy," he said, doubting seriously that the tariffs would ever be imposed. "It's not going to help anybody, it will hurt a lot of people though."

China also has to go through a rethink of the ongoing trade war. China has paid a costly price for its success in gaining accession to WTO in a considerably long period of 15 years and has been compelled to open its door to the outside world accordingly. We have heeded lessons from American policy of pragmatism that we should put equal emphasis on the implementation of market opening policIes and self-protection. We ought to create a strategic development space for the industries with competitive strength and safeguard our own interests in the course of settling every single trade dispute.

The minister of the Chinese Ministry of Commerce Bo Xilai announced on May 30, 2005, to the public media around the world that China will not make any concessions to the United States and will squarely address the trade friction with the United States in textiles. China’s approach will be viewed as an impressive turning point in the contemporary Chinese history of trade which featured every-expanding opening. This declaration also is the response given by China when China faces the changes caused by American reconsideration over free trade.

The author hopes that the world trade system does not move into an indefinite period of protectionism . Conversely, the writer makes a wish that the trend of trade liberalization will be irresistible and the global welfare can be raised continually.

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