A Brief History
On December 27, 2001, the People’s Republic of China, aka “Red” China, or just plain old “China,” was granted status as Permanent Normal Trade Relations with the United States, a label formerly known as “Most Favored Nation” status. (Note: this date is somewhat confusing vis a vis some of the other dates referred to within because of differing sources.)
Digging Deeper
Due to the history of GATT (General Agreement on Tariffs and Trade, 1948) which became the World Trade Organization (WTO, 1994) the US did not have normal trade relations with Communist China due to Cold War animosity. Congress had required banning Most Favored Nation status against almost all Communist countries, and in the Trade Act of 1974 reaffirmed that ban, with provisions that any country thus banned must comply with parts of the 1974 Trade Act allowing emigration and setting up bilateral trade agreements with the US in order to receive PNTR status. The President of the US was given permission to waive the ban on PNTR for one year terms.
The US had been granting China an annual waiver since 1980, although every year from 1989 to 1999 Congress had attempted to pass legislation to deny China the annual waiver unless China complied with mandated Human Rights reforms. These legislative efforts failed, and pressure from the WTO to stop the annual waiver process resulted in China being granted PNTR status by Congress in 1999, effectively allowing China to join the WTO in 2000. President Bill Clinton made congressional action on China’s trade status a major priority in his last year in office, resulting in legislation that granted PNTR to China with provisions supposedly protecting Chinese workers, a provision highly suspect to most Americans.
From 2000 to 2015 imports from China to the US quadrupled, grossly affecting the US manufacturing base, costing millions of US jobs. As early as 2005 Senator Bernie Sanders (I) sought to repeal the PNTR status for China due to the harm to American workers and the trade deficit, as well as no perceptible difference in the treatment of Chinese workers. This issue has become a common complaint of American politicians, notably Donald Trump, who used his criticism of the China trade arrangements to garner the Republican nomination for President and ultimately to win the 2016 Presidential election, pledging all the way to renegotiate trade deals with China.
Trade between China and the US has become the largest such trade partnership in the world, surpassing the previously largest 2 way trade between the US and Canada. Unfortunately, the balance of this trade is lopsided, with China sending the US $380.8 billion in goods while the US sends only $92 billion to China (for the first 10 months of 2016), a current deficit for the US of more than 4 to 1!
Proponents of the China trade status quo (such as Walmart) claim the relationship results in lower prices for Americans, thus raising the standard of living in the US, while critics of the trade arrangements claim American workers have lost so many jobs that the entire US economy is ailing because of the imbalance. Complicating the issue is the refusal of China to allow their currency (Yuan) to fluctuate normally, with tight government controls keeping the Yuan artificially undervalued to stimulate the trade imbalance.
Question for students (and subscribers) to ponder: Should President-elect Trump and Congress throw out the current trade agreements with China, perhaps even revoking PNTR status? What should we do about this perceived problem? Does this massive deficit in trade endanger our country, or does the fact we owe so much money to China and have such an enormous trade relationship with the largest country (by population) in the world create a sort of guarantee against armed conflict? What is your analysis of the situation?
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Historical Evidence
For more information, please see…
Hufbauer, Gary Clyde, Yee Wong, et al. US-China Trade Dispute: Rising Tide, Rising Stakes (Policy Analyses in International Economics). Peterson Institute for International Economics, 2006.
U.S.-China Economic and Security Review Commission. The U.S.-China Trade and Economic Relationship. 2011.
