Chinese Puzzle
George Szamuely
New York Press


It was the height of bad manners to interrupt last week’s euphoria and ask what exactly Americans were getting out of the trade agreement with China. It seemed to be the last thing on the minds of our rulers. "This agreement will strengthen the rule of law in China," exulted Charlene Barshefsky. "This is bigger than a trade agreement," raved White House economic adviser Gene Sperling. It was about China becoming part of "a truly open, free-flowing, international economy that we believe will lead to greater freedom and greater global prosperity." At last, "the possibility for a restoration of the confident, outward-looking U.S. consensus that our history teaches is a requirement for global peace and prosperity"–thus David Ignatius in The Washington Post.

Yes, but what’s in it for us? The United States currently runs a huge trade deficit with China. Opening up the U.S. market to Chinese products will obviously only increase the deficit. While U.S. corporations salivate at the prospect of investing in a country where they can pay their workers sweatshop wages, Americans will have to accept the loss of yet more manufacturing jobs overseas. The Chinese, however, will probably do quite well in the deal. They do not for one minute subscribe to the globalist fantasies of our elite. They intend to continue to protect their markets. Access to the domestic telecommunications market, for instance, will be in the hands of the Information Ministry. In September it barred foreign investment in Internet services. China’s chief WTO negotiator, Long Yongtu, told the Guangdong-Hong Kong Information Daily that restrictions on foreigners’ access to industries and domestic markets would remain in place. Foreign insurance companies, for instance, will be allowed to operate in China only if they receive government-issued licenses. "If it is not necessary [for China], we will not issue licenses," Long said.

The Chinese are being perfectly reasonable. They saw what happened to their Asian neighbors two years ago and they do not want to share the same fate. They have been careful not to open their economy to foreign capital. They have retained control over their banking and financial systems. They have refused to make their currency convertible. And they have also enjoyed one of the fastest economic growth rates in the world. They are a little baffled by Washington’s obsession with foreign investment. After all, they, Japan and South Korea all demonstrated that rapid economic development is possible without any foreign investment.


Since 1945 successive U.S. governments have taken the lead in breaking down trade barriers around the world. Why it has done so can only be explained by a fanatical commitment to a dogma. Barriers to trade were barriers between nations and, hence, caused wars. As the barriers came down, global trade surged. The results have been distinctly lopsided. Most Americans are hardly better off now than they were 30 years ago. The rich, however, have done extremely well. Companies switch their operations overseas to take advantage of cheap labor. At home employees are thrown out of work and may have to take a cut in pay. On the other hand, profit margins along with the value of the company stock soar. Hence, the growing income disparities in America.

The figures are remarkable. From 1969 to 1996, median household income rose a very modest 6.3 percent in constant dollars (from $33,072 to $35,172). Since 1977 the incomes of the top one percent of the population have risen dramatically. They have risen modestly for those in the middle of the income spectrum. And they declined for those in the bottom fifth. As a result, the distribution of income has changed markedly. In 1977, the top one percent of U.S. households received 7.3 percent of the national after-tax income. In 1999, this group is projected to receive 12.9 percent of the income. The top 20 percent of households is projected to receive 50.4 percent of the national income in 1999. The remaining 80 percent of the population is expected to share the other half of the national household income this year. Income disparities have widened to such a degree that in 1999, the richest one percent of the population is projected to receive as much after-tax income as the bottom 38 percent combined.

Our elite’s latest enthusiasm is for something called the World Trade Organization. No one is quite sure what this is. It is meant to facilitate free trade. Its decisions are arrived at in secret and it hands down rulings that are as incontrovertible as Mosaic Law. Nations can no longer decide for themselves their health, safety and environmental standards. They can no longer decide what kind of trade agreements they have and with whom. They are now to have but one mission–to open themselves up to free trade and free capital. If they fail to do so, they are to be punished. Recently, the United States got into one of its regular trade wrangles with the European Union. The issue was bananas. For decades European countries had imported bananas from their former Caribbean colonies. A special arrangement enabled these less than efficient banana growers to compete against U.S. giants like Chiquita (formerly and better known as the United Fruit Co.). Earnings from these banana sales had enabled a number of these Caribbean islands to survive economically. Chiquita, a major Democratic campaign contributor, was enraged by this arrangement and lobbied the administration to do something about it. The U.S. government took the matter up with the WTO. In 1997 the WTO ruled against the EU. Europe responded by altering its system of preferences. The U.S. would have none of it and imposed trade sanctions against the Europeans–all with the smiling acquiescence of the WTO. That there may be good reasons to ensure the survival of tiny Caribbean islands cut no ice with the WTO. The wishes of Chiquita were paramount.

The WTO has ruled that the Europeans’ ban on hormone-fed beef was a violation of free trade rules, even though these health regulations applied equally to domestically and foreign-produced beef. That Europeans care a lot about the quality of the meat they are eating is of no concern to the WTO rulers. The WTO has also ruled against the United States. Apparently, our Endangered Species Act serves to restrict trade. Americans cannot reject imported shrimp that were caught in nets that also killed sea turtles. The WTO can step in anywhere at any time and decide what habit or custom must be done away with because it stands in the way of free trade. There are no nations–only conglomerates engaged in relentless commerce. I guess that is why our elite love the WTO so much.