China's Trade Status: High Economic Stakes

If MFN standard is revoked, China may retaliate by curtailing purchases of US goods

By , Staff writer of The Christian Science Monitor

AROUND this time each year, Robert Kapp begins to tote a folder labeled ``MFN'' in his briefcase wherever he goes. Like many other business leaders around the United States, Mr. Kapp, president of Washington State's Council on International Trade, is lobbying for renewal of China's ``most-favored nation'' trade status as Congress's June deadline to vote on the issue approaches.

The trade standing, which the US currently grants to all but 10 nations, has been renewed for China after heated debate every year since 1989, when Beijing crushed democracy protesters in Tiananmen Square. But this year's debate has a unique twist: a game of brinkmanship based on President Clinton's warning last year that, without Chinese progress on human rights, MFN would be revoked.

The economic stakes are high: Trade with China has been growing at double-digit annual rates, with 1993 US exports of $8.8 billion and imports from China of $31.5 billion. The exports support about 167,000 American jobs, according to Commerce Department calculations.

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Chinese retaliation

If the standard trade status is removed, China could retaliate by curtailing its purchases of US goods, including Washington State products such as Boeing jetliners, apples, and Kenworth trucks. Meanwhile, American consumers could see prices soar for clothing, shoes, electronic gadgets, and other goods now imported from China.

``This is an awful tar-baby for the United States to stick itself to,'' says Richard Baker, a senior fellow at the East-West Center, a Honolulu research organization.

With the Chinese standing firm against his human-rights gambit, Mr. Clinton may seek a compromise using selective penalties that would stop short of complete revocation of MFN. If such a way out is not found, potential effects on American businesses and consumers could include:

* Jacked-up consumer prices in the US, as incoming Chinese goods face sharply higher tariffs without MFN. One study using 1991 import data found that duties on China's $2.5 billion footwear shipments to the US would triple to $846 million. Tariffs would rise sevenfold on $2.5 billion worth of television sets and sound equipment (to $945 million) and triple on $1.2 billion worth of leather goods (to $487 million). American consumers could buy many of these goods elsewhere, but ``not overnight'' and not at the same prices as they do currently, Kapp says.

* Dampened prospects for continued US corporate investment in China. Proponents of China's MFN status say such investment creates related jobs in the US and can help spread American ideas, including human-rights standards. Mr. Baker says this has already happened: ``The really important thing about Tiananmen was not that the tanks rolled; it's that the Styrofoam statue of liberty appeared.''

* Curtailment of numerous American exports - from wheat to nuclear-power equipment. The impact would be particularly severe if China's retaliation was designed to equal US sanctions in dollar value, since the penalties would come out of a US export total that is one-third the size of China's exports to the US.

Northwest could suffer

Here in the Northwest, one likely target is the Boeing Company, the nation's largest exporter, which sends about one in six of its finished airplanes to China. Over the next 15 years, Chinese airlines will buy 800 new airplanes worth $40 billion, Boeing predicts. Last year, US aerospace exports to the country totaled $2.2 billion.

A smaller target is Washington State's apple industry, which hopes China's 1.2 billion population will fast become one of its biggest export markets. This spring, pending approval from Chinese fruit inspectors, growers here will make their first shipments ever to China. ``Establishing a foot in the door in advance of this [MFN] debate is viewed as a top priority,'' says Kraig Naasz of the Northwest Horticultural Council. The state accounts for almost all US apple exports.

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