Economic Reporting Review
May 29, 2000:
China Trade Bill; U.S. Trade Deficit; Patents
By Dean Baker
China Trade Bill | Trade Deficit | Patents | Outstanding Stories
CHINA TRADE BILL
"China, EU Sign Broad Trade Pact"
Clay Chandler
Washington Post, May 20, 2000, page A1
"China and Europe Agree on Trade Group Entry"
Craig S. Smith
New York Times, May 20, 2000, page A4
"Chinese Calling U.S. Trade Bill Vital to Reform"
Elisabeth Rosenthal with Joseph Kahn
New York Times, May 21, 2000, Section 1 page 1
"Clinton Softens Push for China Trade Bill"
Charles Babington
Washington Post, May 21, 2000, page A6
These articles discuss issues related to permanent normal trade relations (PNTR) with China.
The articles by Chandler and Smith report on a trade agreement reached between the
European Union and China that will facilitate China's entry into the WTO. Both articles assert
that this agreement would grant European firms an advantage over U.S. firms in dealing with
China, if Congress does not grant China PNTR.
For example, the Post article asserts that the agreement was "seen in Washington as an
additional push to the Clinton administration's efforts to persuade Congress to grant China
permanent normal trading relations (PNTR)." It then quotes U.S. Trade Representative
Charlene Barshefsky's statement that the United States will be at a major disadvantage in trade
agreements with China if Congress does not approve PNTR.
This claim is disputed by Columbia University law professor, Mark Barenberg, who specializes
in international economic law. Barenberg argues that as long as the United States is extending
normal trading status to China (which is currently the case), then it is entitled to any trade or
investment concessions that China grants to third nations. According to Barenberg's argument,
if China joins the WTO, the United States would be able to benefit from any concessions that
China granted the EU, whether or not Congress approved PNTR. (This argument can be
found in Barenberg's memo, "The Debate on PNTR for China: A Response to Barshefsky and
Jackson.") These articles should not have presented the Clinton administration's position
without noting that it is questioned by legal scholars.
The article by Rosenthal and Kahn discusses the attitudes of people it labels as "reformers" in
China. According to the article, virtually all of these people are hoping that the U.S. Congress
approves PNTR. It is worth noting that leaders of other nations who were frequently referred
to as "reformers" in these papers and by U.S. political leaders were subsequently shown to be
enmeshed in corruption. This list includes Boris Yeltsin in Russia, who was granted immunity
from prosecution by his successor; Carlos Salinas in Mexico, who is now living in exile in the
United States; and Fernando Collor in Brazil, who resigned to avoid impeachment. This past
history should lead readers to demand evidence that the people in China identified as
"reformers" really fit this description.
The Babington article includes an assessment of the politics of the PNTR vote by Al From, the
president of the Democratic Leadership Council. From is quoted, in the context of the PNTR
vote, as saying that "the American people are not going to turn to a protectionist party." He
then goes on to note that all the major contenders for Republican and Democratic party
presidential nominations supported PNTR for China.
The article does not present any views countering From's. It is worth noting that most polls
show PNTR to lack majority support. Therefore it is not obvious that a presidential candidate
would lose popular support by opposing it. However, PNTR for China does enjoy
overwhelming support from business-- hence it would be difficult for a candidate who opposed
PNTR to raise the money needed to win a major party's presidential nomination.
"Rallying Round the China Bill, Hungrily"
Keith Bradsher
New York Times, May 21, 2000, Section 3 page 1
"Autos: Huge Investments, and Seeking More"
Keith Bradsher
New York Times, May 21, 2000, Section 3 page 2
"Textiles: Cheaper Clothing, But at What Price?"
Leslie Kaufman
New York Times, May 21, 2000, Section 3 page 2
"High Technology: Intellectual Property and Other Issues"
Sara Robinson and Seth Schiesel
New York Times, May 21, 2000, Section 3 page 3
"Agriculture: Poised to Become a Big Winner"
David Barboza
New York Times, May 21, 2000, Section 3 page 3
These short articles examine how several important industries will be affected by granting China
PNTR status. In each case the articles either advance implausible claims in support of the
agreement, or ignore important factors that may put PNTR in a more negative light.
For example, the Bradsher piece notes that PNTR will end China's requirement that 80 percent
of the parts used to assembly cars in China be produced domestically, implying that this will
lead to a surge in exports of car parts to China from the United States and elsewhere.
However, the likelihood that there will be a significant flow of car parts from the United States
to China is extremely small. As it notes in the opposite context (shipping Chinese-made parts to
the U.S.) in its last sentence: "The logistics costs of moving parts around the world are
expensive."
Similarly, the Kaufman piece includes a quote from a clothing manufacturer implying that there
will be substantial sales of U.S.-made textiles in China. Given the advantage in labor costs
enjoyed by manufacturers in China, or elsewhere in East Asia, it is almost inconceivable that
there will ever be a significant flow of textile products from the United States to China.
The Robinson and Schiesel piece implies that this agreement will be a great boon for the
development of China's high-tech sector because it will lead to increased enforcement of
copyrights in China. According to the U.S. software trade association, 95 percent of the
software used in China is currently unauthorized. This means that if China were forced to pay
the copyright-protected price for all of its software, the cost of the software used by Chinese
industry would increase by 2000 percent. It is questionable whether this would be beneficial for
China's high-tech sector.
The Barboza article claims that PNTR will lead to more U.S. sales of agricultural products to
China, which it describes as a win-win situation. China will win because its consumers will have
access to lower-priced imported food. U.S. farmers will win because they will get higher prices
for their products. The article fails to note that if U.S. farmers win because they get higher
prices for their products, then U.S. consumers will lose to some extent, since they will be
paying higher prices for food. The gains to farmers may exceed the losses to consumers, but a
full accounting of the impact of the trade agreement should not ignore the prospective costs to
consumers.
"In Chinese Wages, a U.S. Bump"
Clay Chandler and Frank Swoboda
Washington Post, May 23, 2000, page E1
This article discusses the compensation received by the Chinese employees of U.S. firms
operating in China. It presents an extraordinarily one-sided account, relying almost exclusively
on wage data provided by U.S. corporations. Only in the last paragraph does it mention some
of the evidence of abusive conditions uncovered by human rights investigators in China.
The article presents several assertions about wage rates in China that are on their face
implausible. For example, it reports that at a Delphi Packard joint venture that manufactures
car parts in Shanghai, workers' make about $3,600 a year, counting benefits and bonuses.
Assuming a 2,500 hour work year (probably a low estimate), this implies an hourly wage of
$1.44. The article claims that General Motors pays workers at its car factory, also located in
Shanghai, an average hourly wage of $3.70 an hour, in addition to benefits of 89 cents an hour,
or "performance bonuses which can almost double take home pay."
This implies that the General Motors workers receive 226 percent more than the Delphi
workers. This is an incredible pay differential for workers in the same industry in the same city.
It would be comparable to some autoworkers receiving $18 an hour in one factory in New
York City and $60 an hour for comparable work at another factory in New York City.
Differences of even one-fifth this magnitude are rare.
The article then reports that a U.S. Chamber of Commerce survey of 48 U.S.-based firms
operating in China found that the firms paid their workers an average of $5.25 an hour, not
counting benefits. This implies that the average firm pays wages that are more than 40 percent
higher than the wages in the G.M. factory and nearly four times as high as the wages at the
Delphi factory. Since neither company is known to be especially bad employers (the opposite
is true), the Chamber of Commerce's data is clearly wrong. Apparently the Chamber of
Commerce has chosen to fabricate wage data in the hopes of influencing the Congressional
vote on PNTR.
The article points out that U.S. labor unions would like China's trade status to be subject to
annual review by Congress, and then adds, "It's fine with union leaders if that perpetuates the
economic uncertainty that discourages many U.S. firms from investing and creating jobs in
China."
While this may be a legitimate conclusion, news stories usually refrain from such inferences. For
example, U.S. pharmaceutical companies have lobbied hard to have their patents enforced in
developing nations. It is not likely that any news story will ever infer that "it's fine with industry
executives if young children in developing nations die because patent protection has made
life-saving drugs unaffordable." This inference about the attitudes of drug company executives
has the same logical validity as this article's inference about the attitudes of union leaders.
This article focuses exclusively on the wage and working conditions of workers directly
employed U.S. multinationals. The article does not note that when issues have been raised
about the employment conditions of people doing work for U.S. multinationals in China and
other developing nations, it has nearly always concerned the working conditions of
sub-contractors, not those directly employed by U.S. firms.
More about China.
More about trade.
[Top]
TRADE DEFICIT
"Trade Deficit Rises to $30.2 Billion"
John Burgess
Washington Post, May 20, 2000, page E1
This article reports on the Commerce Department's release of trade data for the month of
March. The article notes that the $30.2 billion trade deficit in March was a record, but then
states that when "inflation is factored in, the monthly number has been somewhat higher in a few
months of the past year."
This claim is misleading. It is based on the fact that the prices of some imported goods, most
notably oil, have risen significantly in the last year. In other words, if the effect of the higher
price is removed, then the March trade deficit would appear much smaller. This is an
inaccurate way of accounting for inflation when examining the trade deficit, if the purpose is to
determine the future burden it places on the country. For this purpose, the correct way to
account for inflation in trade data is to use an overall measure of inflation, such as the GDP
deflator, to compare deficits at different points in time. (A better measure is to take the deficit
as share of GDP.) In terms of its impact on the sustainability of the trade deficit and the nation's
indebtedness, it doesn't matter how many goods we are actually getting for the dollars we
spend on imports--the only relevant factor is how much more we are spending on imports than
foreigners are spending on U.S. exports.
More about trade.
[Top]
PATENTS
"Drug Makers and the Third World: A Case Study in Neglect"
Donald G. McNeil Jr.
New York Times, May 21, 2000, Section 1 page1
This informative article examines the reasons why few drugs are developed and produced for
the diseases that afflict people in developing nations. At one point it comments that health
policy experts view it as necessary to give drug manufacturers tax breaks or to pay them
directly in order to get them to develop drugs that meet the needs of people in developing
nations.
This assertion assumes that the patent system is the only or best way to produce drugs. In fact,
most biomedical research is not supported by patents. It is supported by either the government,
private foundations and charities, or universities. The Times has run many articles recently that
point to the inefficiency of the patent system as a means of supporting bio-medical research.
For example, a recent article reported that medical volunteers are reluctant to take part in
research without compensation when they realize that the researcher or her employer stands to
profit from it ("Sharing of Profits Is Debated as the Value of Tissue Rises," by Gina Kolata,
New York Times, 5/15/00, page A1; see ERR, 5/22/00). An article last year reported on
how the large gap between the patent-protected price and the actual cost of producing drugs
has created a black market for drugs. The drugs sold in this black market are of questionable
quality ("Makeshift Pharmacies Are Dispensing Death," by Don Terry, New York Times,
March 29, 1999, page A19; see ERR, < a
href="http://www.fair.org/err/990405.html">4/5/99). Patents are not the only way to support
biomedical research, and there is no evidence in favor of the view that they are the most
efficient means to support this research.
[Top]
OUTSTANDING STORIES OF THE WEEK
"Charitable Giving Surged Again in '99, by an Estimated 9 Percent"
Karen W. Arenson
New York Times, May 25, 2000, page A14
This article examines data on charitable contributions in 1999. While the article notes that
contributions have risen significantly compared with previous years, it notes that they actually
fell slightly when measured as a share of national wealth. This would be the appropriate metric
for giving, since many of the contributions were in the form of stock, and since the legally
required minimum annual amount of grants from foundations is determined by their asset
holdings.
"Harvard Won't Ease Funding Restrictions"
Robert O'Harrow Jr.
Washington Post, May 26, 2000, page A16
This article reports on the decision by Harvard's medical school to retain limits on the
consulting fees that researchers can receive from companies with a stake in the outcome in their
research. Harvard also restricts stockholding in such companies. The school decided to keep
the policy, over the objections of many faculty members, because of concerns about conflicts
of interest.
[Top]
Dean Baker is an economist and the co-director of the Center for Economics and Policy
Research (CEPR). His latest book (co-authored with Mark Weisbrot) is Social Security: The
Phony Crisis (University of Chicago Press). ERR is a joint project of FAIR and CEPR.
ERR is edited by Jim Naureckas.