China's (petty) fiscal crimes not sinister dragon Congress suggests

For an example of what stokes anti-Americanism, consider the tone on Capitol Hill toward China's economic policies. China is getting hammered for its currency peg, its violation of intellectual property rights, and its bad habit of supplying Americans with cheap clothing. All this is supposed to be sinister and unfair. Fully 67 senators back a bill that would impose a 27.5 percent tariff on Chinese goods unless Beijing ups the value of its currency. Bowing to congressional pressure, the Bush administration recently announced quotas on imports of Chinese clothing.

This is crazy. China's political system is odious; its arms buildup menacing. But its economic performance is not sinister: It lifted 400 million people above the $1-a-day line between 1981 and 2001, a period when the net progress against poverty in the rest of the world was zero. And China's growth isn't unfair: It has become a better global economic citizen than reasonable observers could have predicted.

Think China doesn't abide by international rules? To meet the terms of its accession to the World Trade Organization (WTO), China abolished or amended 2,600 legal statutes and regulations, Neil Hughes notes in the latest Foreign Affairs. The compliance continues: China is pressing ahead with its WTO commitment to open its capital markets to foreign competition by 2007.

Think China discriminates against imports? Between 2000 and 2004, China's US imports doubled. It imported 60 percent more US goods than France last year, though the French economy is bigger than China's.

Think China discriminates against foreign investors? In the past 25 years, China has taken in 10 times as much foreign investment as Japan did between 1945 and 2000. As a result, more than half of China's exports are made by foreign subsidiaries.

Think China nonetheless contributes in a major way to the US trade deficit? Actually, China's current-account surplus (trade plus a few other cross-border payments) last year was just over half the size of Germany's, though it's true China's is expanding quickly.

The US current-account deficit with the rest of the world came to $666 billion in 2004. There's no way this can be blamed on the Chinese surplus, which was a mere $56 billion. Members of Congress who worry about the world's unbalanced trade pattern should paint those numbers on their walls: China's contribution to the imbalance last year was one-twelfth the size of America's.

Congress is beating up China for its clothing exports because of a surge (suggesting cheating) early this year. But this particular surge happened because Chinese exports had previously been suppressed by protectionist quotas. Now the administration is reimposing quotas all over again. If anyone can be accused of distorting markets in an unfair way, it's the US rather than China.

Congress is also beating up China for its currency policy and its piracy of US intellectual property. Yes, China pegs the yuan to the dollar, a policy that keeps its value artificially low and its exports artificially competitive. Yes, Chinese pirates rip off American music and software. But Congress should keep this misbehavior in perspective.

China's cheap currency, like America's budget deficit, contributes to a lopsided global economy. But neither the US nor China is going to change unless change serves its own interests. The cheap currency policy creates inflationary pressures in China, and at some point it should go. But the Chinese have kept the lid on inflation so far; and it creates manufacturing jobs for the millions who are deserting the countryside or leaving inefficient state-run enterprises.

Even if the Chinese revalued the yuan by 10 or 15 percent, and even if other Asian exporters followed, the result would be a fairly modest dent in the US current-account deficit. China's currency policy is an economic misdemeanor, not a felony. Equally, Chinese piracy is real, and is a bigger threat to the US than exports of T-shirts and bras: The clothing industry is marginal to US prosperity, but intellectual property is central. Some piracy is endemic in all developing countries, which have an interest in spreading software cheaply rather than rewarding foreigners who invented it. So it's striking that China has good antipiracy laws on its books. Though enforcement remains a problem, at least China's working on it.

For perspective, Congress should recall debates over China's WTO membership in 2000. Then, it seemed reasonable to predict Chinese cheating would create a flood of complaints to WTO dispute-settlement tribunals, causing the system to grind to a halt. The really big news is that this hasn't happened. Relative to older Asian tigers, notably South Korea and Japan, China has developed in an open, import-friendly way. It's trying to play by global economic rules, even if its record isn't perfect.

But who does have a perfect record, anyway? Not the Europeans, whose inflation-fighting sado-monetarism holds back global growth. Not the Japanese, who are kings of farm protectionism. And not the US. What's Congress doing about the budget deficit, about egregious farm subsidies or about the scandal of US antidumping laws rigged against foreigners? No more than China is doing about its problems, actually.

Sebastian Mallaby is a member of The Washington Post's editorial page staff. ©2005 The Washington Post.

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