Do you remember Armand Hammer? If you are over 50, you can. Hammer was a business tycoon who died in 1990. He was best known for his deals with the Soviet Union. Hammer would make trade deals directly with the Kremlin. It was unusual; most American companies have had very little connection with the United States’ biggest adversary. Today, on the other hand, many American multinational companies see their growth as much or more linked to China, our new main adversary, than to America.
I began my career as a young lawyer on a special congressional committee set up to investigate the transfer of sensitive US missile technology to China in the 1990s. As a result of our investigation, two of America’s biggest satellite companies – Hughes and Loral – have been forced to pay record multi-million dollar fines for transferring dangerous missile technology to China. As you read the news that China has now launched nuclear-capable hypersonic missiles around the world, remember where it all started. American companies have helped them along the way.
Hughes and Loral were just the tip of the spear. In the 1990s, after the Soviet collapse, there was a feeling that the world was entering a period of total American supremacy. There was no global peer. As we now know, it didn’t last very long. China quickly filled the void. Unlike the days when Hammer was distinguished by his singular trading exploits in the Soviet Union, China understood how to use the main trading powers of its greatest adversary, the United States, to fuel its own growth.
The first important step taken by American companies was to remove trade barriers with China. Open trade, they argued, would lead to a more open China. A more internationally intertwined China would lead to human rights reforms, the argument continued. Interestingly, Hammer had tried to make exactly the same arguments about the Soviet Union: “The Soviet leaders are gradually coming to see trade, rather than confrontation with the West, as the means to improve conditions. economic ”. Fortunately, most Americans haven’t bought it. President Ronald Reagan certainly did not. The United States did not trade much with the Soviets. Existing trade was heavily regulated, especially in the technological area. Corporate America in general was on the sidelines.
With the Soviet collapse, mentalities seemed to change. The allure of the huge Chinese market and the promise of cheap Chinese labor were too hard for US companies to resist. Finally, in 2000, the United States permanently normalized trade relations with China and voted to allow China to join the World Trade Organization. Everything since has been a total disaster.
Drive through a small American town and you’ll see hollowed out communities, boarded up main streets, and closed factories that employed thousands of people. This degradation has led to a surge in drug overdoses, an increase in crime and the political upheaval that continues to unfold. It is too simplistic to attribute everything that happened in America to the rise of China and our Chinese policies. It is just as naive to claim that it did not have a great effect.
Nothing predicted by those who promoted free trade with China has come true. Supporters said normalized trade relations with China would reduce our trade deficit. Instead, the deficit skyrocketed, mainly due to the US’s tripling of the trade deficit with China. Supporters said normalized trade with China would benefit the U.S. economy. Instead, a third of U.S. manufacturing jobs have disappeared, with studies showing many have moved to China. Supporters also predicted that opening trade would ease China into a period of political liberalization and respect for human rights. This prediction by so many so-called experts was so wrong that it should be at the top of the list of reasons Americans have lost faith in national institutions and leaders. You can’t go wrong with such important things and keep people’s trust. China, of course, has not liberalized. They are running forced labor camps right now.
Free trade supporters love free trade for a good reason. It makes sense. It adds efficiency and increases total economic output. What we haven’t discussed enough is how free trade works with a country like China. When one side is a free capitalist market and the other is still a closed and corrupt mercantilist market ready to use slave labor, how will things go?
All in all, it is difficult to say that normalized trade relations with China have been a net positive for average Americans. They have certainly been a net positive for some US multinational corporations, Wall Street, and the very wealthy. American companies have used cheap Chinese labor to great advantage. How much of this benefit goes to the American people is debatable. Americans who invest in stocks enjoy higher market valuations for some American companies. Others benefit from cheaper products made in China. The downsides include lost jobs, shattered communities, and weakened national security due to dependence on a foreign power.
With the benefits of US-China relations reaching a small segment of the American population and the resulting harm to the masses, the political ramifications of America’s huge mistake in China over the past 20 years continue to grow. to play. The U.S. government is finally poised to take action against China’s use of slave labor many years after evidence of it was first discovered. America is also reflecting more clearly on its dependence on China for essential goods and services. We are debating how to decouple ourselves from this dependence on a repressive and largely antagonistic China. This debate is long overdue. Politicians who figure out how to do it while minimizing damage to the economy will be rewarded. Those who continue to ignore it will be punished.