First Japan, now China? After an impressive, nuanced show of force in placing $1 billion of punitive tariffs on Chinese exports to combat the flagrant piracy of U.S. products, the Clinton Administration is in danger of signing a deal that does little to shrink America's growing $30 billion deficit with China. That would be a big mistake.
Throughout the cold war, the U.S. accepted Japanese protectionism because of overriding geopolitical concerns. Lost exports, slower growth, and fewer American jobs were the price of Tokyo's continued political support in the fight against communism. Besides, the bulk of the global trading system was open, and the U.S. could compete successfully in Europe and other markets where the playing field was more level.
We now see that the price of solidarity was too high and that Japanese-style mercantilism is no harmless economic anomaly. That is why Washington--and Corporate America--should think twice about the specter of Chinese mercantilism. If China can create a closed economy that feeds off never-ending trade surpluses with the U.S., the free-trade system could break down. It's not only China's size--its economy is expected to rival that of the U.S. in three decades--but its role as a model for the rest of Asia that matters. The U.S. would be hard put to remain true to its free-trade principles if all of Asia goes mercantilist.
To a growing number of Americans, the benefits of free trade are already elusive. Traditional opposition from unions on the left is being joined by new opposition on the right, from freshman Republicans to European businessman Sir James Goldsmith. The bipartisan support behind the U.S. role in financing the expansion of free markets and democracy around the world that began with the Marshall Plan is eroding. Increasingly, the forces of protectionism and internationalism do battle in Congress. Neither the Democratic nor Republican leadership, for example, could deliver the votes to provide loan guarantees to help Mexico. And the North American Free Trade Agreement and the General Agreement on Tariffs & Trade passed with the slimmest of margins.
It may be that Beijing's leadership crisis makes it hard for China to accommodate the U.S. But the confusion surrounding the imminent passing of Deng Xiaoping is also an opportunity. China is not only undergoing a succession crisis, it is deciding what kind of capitalism it wants--closed or open, state-owned or private, inward-looking or internationalist. Does it enforce its laws on intellectual-property rights, or does it not?
Now is a perfect time for Washington to make it clear that the U.S. and the global trading system are open only to those who play by the rules. Running 29 factories that counterfeit American software and video disks is simply not acceptable in a trading partner. It is more than a matter of knocking off copies of The Lion King. The intellectual-property conflict revolves around Chinese piracy of U.S. technology and management knowhow on a broad scale. After Chrysler Corp. invested millions of dollars in China to build Jeeps, it discovered to its horror that the Chinese were knocking them off--with no apology.
This is a critical moment for free trade. U.S. Trade Representative Mickey Kantor should make it plain that the counterfeiting must end and the trade imbalance must begin to shrink before the U.S. allows China to join the new World Trade Organization. China and the U.S. can prosper together only if they can reap benefits from being in each other's markets. That message should be delivered to Beijing by Kantor--and all of China's trading partners, for that matter. Anything less will undermine free trade around the globe.