China – More Than Trade in the Balance

The US national interest is that nuclear armed communist China be a peaceful state and that it evolve toward political democracy which would assure its future non-aggression and safeguard the human rights of its citizens.  China has tightly regulated US and other countries' access to its market and in the 1990s greatly expanded its exports.  As a result of China's sending 35% of its exports to the US, while admitting 2% of US exports, it has a cumulative trade surplus from 1990 to 1997 with the US of  $217 billion and an additional $177 billion with the EU and Japan. 

Much of China's trade surplus goes toward increasing the capabilities of its military-industrial complex.  This includes intensive efforts to expand and upgrade its nuclear strategic missiles capable of reaching the US.  Currently, those nuclear forces are estimated to total about 30 missiles with single nuclear warheads, but this is expected to grow to an arsenal of more than 200 intercontinental strategic nuclear warheads within five years.  Furthermore, China has become more aggressive internationally, claiming sovereignty over the international waters of the South China Sea, occupying disputed islands by force, and using missile launches and military mobilization near Taiwan in 1995 and 1996 in an effort to prevent the completion of its transition to political democracy through fair elections.  Also, China has continued the proliferation of weapons of mass destruction and has become more politically repressive internally.  Contrary to President Clinton's expectations when he decided in 1994 to give China access to the US market without conditions, current US trade policy undermines US national interests because it assists China's military buildup and abets its international aggressiveness, internal political repression and one-sided trade practices.

China's use of trade surplus dollars to buy weapons from Russia has further seriously negative effects.  As Radio Moscow stated "[w]ith money earned from the sale of Russian military equipment to China, Russia will be able to fund the development for itself of the most up-to-date types of armaments."  Russia retains an operational strategic nuclear force of more than 6,000 warheads.  In April 1998, the commander of US strategic forces publicly stated that "Russia continues to invest heavily in its strategic missile force and most of its ICBMs are still on alert, capable of being launched within minutes of receiving a launch order."  Russian political institutions remain very fragile.  The anti-reformist Russian communist party has a strong, continuing political role, and hopes to return to power in the presidential election scheduled for June 2000 or sooner if Yeltsin's incapacitation should result in an earlier election or succession crisis.

Given the growing potential threat to the US and its allies posed by China's growing strategic nuclear and regional military capabilities and the indirect effect Chinese purchases are having in facilitating Russian nuclear modernization, it does not make sense to continue providing China with unconditional one-way open access to the US market.  The new national interest approach to trade with China proposed here seeks to create positive incentives for China to end its nuclear weapons buildup, terminate proliferation of weapons of mass destruction and comply with the human rights commitments to which it has obligated itself in the UN Declaration of Human Rights.

It would do this by establishing direct linkage between US market access opportunities for the PRC and its actions.  The first step would be to divide the previous year's Chinese trade surplus with the US into three parts and link China's continuing one-way market access opportunities to its actions in three domains:

I.                     50% (or $24 billion of the 1997 trade surplus of $48 billion) would depend on China's ending its buildup of nuclear weapons and international aggressiveness

II.                   25% (or $12 billion of the 1997 trade surplus of $48 billion) would be linked to China's termination of proliferation of weapons of mass destruction

III.                 25% (or $12 billion) would depend on improved observance of human rights already established in the Chinese constitution or international conventions to which it has subscribed.

The US government would make an annual assessment of Chinese actions in these three domains and assign a score ranging from -100 to +100 for each.  If, for example, China continued its nuclear buildup and aggressive international actions and claims without good faith negotiations, it would receive a score of 0.  That would mean an immediate loss (through tariff adjustments) in the next trading year of $24 billion in one-way market access opportunities.  China would then either have to import $24 billion more of US products, or its imports to the US would shrink by $24 billion.

In the case of proliferation, if China had actually terminated those activities, it would receive a score of 100.  This would permit it to have 100% or $12 billion in one-way market access opportunities.  On human rights, if there were some degree of visible progress and China received a score of 25 in the first year, it would be permitted 25% of the $12 billion in one-way market access opportunities or $3 billion.  On the other hand, if repression had increased sharply and China received a score of -100, it would lose the original $12 billion plus another $12 billion in one-way market access opportunities.

In implementing such an approach, a number of very positive effects are possible.  It would create incentives in China for those favoring improved consumer welfare to push for constraints on its nuclear buildup and on regional assertiveness.  It forces the "geopolitical dominance" faction in the Chinese regime to face the loss of resources for military modernization if they fail to change their actions.  Simultaneously, it would give the more moderate economic modernizing elements of the regime a stronger basis for bargaining with the hard-liners in the military and the Communist party.  Although China might threaten to increase imports from the EU and Japan at the expense of the US and to restrict repatriation of profits from US investments in China, they would find that EU and Japanese export markets could not make up for the enormously lucrative surplus that had been gained with the US.

In plain fact, it is China that needs access to the US market -- all the more so in view of the Asian financial crisis.  The US economy as a whole would hardly be affected by the loss of 2% of its exports to China or by restrictions on US foreign direct investment.  The US national interest in preventing the potential emergence of another global and regional menace on the order of the former Soviet Union argues for an approach that will be less economically and politically costly now than it would be at a later, more dangerous, stage.  This is the time to take this constructive step in the interest of security, peace, and human rights.

This op-ed originally appeared in The Washington Times on June 26, 1998