I'll Take a Bottle of That PNTR!

By Douglas C. McGill

(Virtual China, May 26)   It is high time to update the famous business mantra: "What's good for GM is good for America."

The new mantra big business has spent darned good money to make sure we all learn by heart is: "What's good for Corporate America is good for the entire world."

This is the big lesson of Wednesday's Congressional vote to grant permanent normal trading status, PNTR, to China: The U.S. now formally subscribes to the "free trade as panacea" doctrine.

True, many arguments were given for passage of the bill. But in speech after speech, "free trade as panacea" is the one argument that shined forth most brilliantly and truly clinched the deal.

Magic Oil

"Trade with China is good for the Chinese people, good for human rights, good for Democratic reform, good for national security and good for American values," said Republican David Dreier, the avid pro-PNTR spokesman who struck the theme in the debate's very first speech. "This bill is key to spreading the Internet across China. China is in the midst of great and dynamic change, and free market reform is the primary engine pushing that change. It's the most positive force in the 5000 year history of China."

Hey, I'll take a bottle of that magic oil!

I wonder if the folks at the Memorial Sloan-Kettering Institute, where they are searching for a cancer cure, have heard about this stuff? Trade with China might be just the thing!

Don't get me wrong - I'm a free trader through and through. I favored granting PNTR to the People's Republic of China. I'll proudly affix to my Honda Civic that bumper sticker that says "Make Trade, Not War."

But there are limits. Was it free trade or the lack of it that hastened the fall of the Berlin Wall, of the USSR, and of apartheid in South Africa? Obviously, the lack of it. And how much has free trade helped Russia to surmount its economic and social problems, now that it is free of Communism? Obviously, not much.

Warning Bells

On its own, free trade is no cure-all. That's why any time you hear politicians from great trading nations glorify free trade on behalf of private enterprise, it's only sensible to hear warning bells.

When politicians say the true purpose of our nation's business is not primarily to raise our own nation's standard of living but rather to raise the morals and political systems of our trading partners: Ding-dong!

In a letter addressed to members of Congress on Tuesday, Bill Clinton wrote: "The question before the Congress is not whether we approve of China's policies. The question is what we can do to help improve them. I believe that bringing China into the WTO and normalizing our trading relationship will advance the right kind of change in China."

The miraculous powers of free trade have often been extolled by politicians as a cover for rapacious commercial forces launched under their nation's flag.

The Dutch East India Trading Company; America's "Black Ships" under Admiral Perry in Japan; and the British Commonwealth all come to mind. In the statehouses of every one of these countries, vast trading forces were sent forth by politicians who lauded them as exporters not of manufactured goods but of superior moral and political ideals.

Who are the Stakeholders

China has suffered a lot from this kind of thing. The last time it happened, in the 1800's, England sent Navy-backed trading ships -- with the blessings of Parliament -- to seize Hong Kong and Shanghai and force open dozens of Chinese cities to the opium trade. The sting of that humiliation is still freshly felt in China, just as in the southern United States there lingers sometimes a very real bitterness over the Civil War.

Making sure U.S. political rhetoric is responsibly deployed is not a matter of protecting our trading partners' sensitivities, but of protecting our own practical interests.

For example, we could simply ask: who are the stakeholders in freer trade with China? And we could answer: U.S. businesses and Chinese businesses; U.S. laborers and Chinese laborers; and U.S. citizens and Chinese citizens.

Then we could look, one by one, at which of these parties are most likely to benefit from passage of PNTR. Anything less than a "win" for every one of the parties mentioned would be less than what our elected representatives promised on Wednesday.

The cases of East Germany, the Soviet Union, and South Africa already show that a "win" for every group is far from certain or even likely.

Trade as Panacea

A look at whether NAFTA truly helped -- or at least didn't hurt -- American workers in the years after it passed would be another test of the "free trade as panacea" doctrine. Congress cited that same doctrine to push through the NAFTA free trade bill with Mexico and Canada in 1993.

Reasonable people have long since concluded that NAFTA has helped some multinational corporations control costs, but the impact of average American Janes and Joes has been minimal to negative.

A Council on Foreign Relations report summarized the lessons of NAFTA and other free trade experiences of the U.S. by saying that while global free trade may enrich corporate coffers, "the living standard of the most typical income earner in the very middle of the income distribution may not rise. Global integration may not benefit middle-class citizens as a group, and further global integration may not be democratically supportable."

Is PNTR for China a good thing? Yes, because working with, talking to, and trading with people increases the chance for mutual benefit and lessens the chance for war.

Does PNTR guarantee that everyone involved will benefit automatically? No. See above.

To discuss this article with me and others, or to air your views about the Panglossian* business of making money on China concept stocks, please stop by the China Stock Forum.

To reach Douglas McGill email: dmcgill@virtualchina.com

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