Integrating Economies: The China Challenge

Abstract

In November 2001, the World Trade Organization formally approved China's accession, a milestone in the history of global trade and a symbolic commitment of the Chinese leadership to the importance of free trade in today's global economy. Over the last four years China has taken important steps to implement the numerous obligations of the WTO agreement, phasing-in the most vital obligations in 2004. While important progress has been made, China's implementation is far from complete. Issues of transparency and market access abound, but international assistance is available to help. Australia, Canada and members of the European Union have all provided technical assistance programs to support the Chinese government in its endeavor to integrate China into the global economy. Americans, however, remain skeptical of China's intentions. With a skyrocketing global trade deficit and recent layoffs at historically preeminent American corporations, such as General Motors, the United States is becoming increasingly weary of the impact of the Chinese market on its domestic economy. Though understandable, American concerns about Chinese economic competition stem from misunderstandings about the dynamics of U.S. -China trade relations. The two economies are deeply intertwined; China is one of the fastest-growing export markets for U.S. products, reaching $28.4 billion in 2003, and nearly 60 percent of Chinese exports to the United States are produced by foreign firms, many of them American. Continuing such an antagonistic approach towards China's "peaceful rise" will be detrimental to American trade policy and influence abroad. The Bilateral WTO Agreement between China and the United States reflects this antagonistic relationship. Though it commits China to important and far-reaching reforms, it stops short of granting China the most fundamental of WTO principles -that of Most Favored Nation Status. Instead, many aspects of the agreement give the U.S. tremendous power to protect its industries and react to what it deems unfair trading practices.