China petitioned to join the WTO during the 1980s as part of its commitment to economic reforms and transition to a more market and globally oriented economic system.  However, it has faced opposition and resistance from countries like the United States that believed China's reforms had not gone far enough in relying on market forces rather than central planning to determine production and trade flows.  The principles that steer the WTO are based on the fundamental premise that market forces rather than government planning dictate trade patterns.  High tariffs, low quotas, government production and export subsidies, foreign exchange controls, domestic content laws, and discriminatory practices are an anathema to the WTO's fundamental codes of conduct.

Although China has committed itself to play by WTO rules, there are those who are opposed to China's entry for reasons of bread-and-butter pragmatism and self-interest.  China's exports have increased dramatically over the past 20 years, and it has been capturing global market share in industries and products that employ relatively low skilled labor.  That is currently China's most obvious comparative advantage. Other countries that also produce these products are at risk to lose even more market share in the years ahead, especially if China joins the WTO.  China already produces 2 out of 3 toys sold in the United States, for example.  And a recent study released by the American Textile Manufacturers Institute concluded that China's entry into the WTO would cost the U.S. textile and apparel industries nearly $12 billion in lost revenues and result in as many as 154,000 jobs lost.  Whenever trade becomes more open and competitive, some workers lose their jobs in the short-run and it requires them to retrain and relocate to find new jobs.  That can be a painful transition for the structurally displaced workers and their families, and it's only natural that they would resist it.

For similar reasons, China has its own detractors within the Chinese Communist Party (CCP).  The accord reached between the U.S. and China requires China to significantly reduce trade barriers and open its market to foreign producers and investors.  Chinese import tariffs are to fall from and average of 22.1 per cent to 17.0 per cent, and duties on agricultural products are scheduled to fall to an average of 14.5 per cent.  These concessions threaten inefficient Chinese factories, workers, and farmers.  More importantly, the very essence of  Chinese political economy is at stake.  Historically, centrally planned industries and firms have proved to be inefficient and no match for streamlined multinational companies that have learned how to compete in a world market where consumers are trying to get the most for their hard earned money.  It may turn out that global economic integration will be the force that ends political oligarchy and bureaucratic X-inefficiency in China, but that's not likely to happen without an internal struggle in Chinese politics.  Those in positions of power and influence will be reluctant to relinquish authority over the nation's resources to some obscure entity called the "invisible hand" of markets.

In spite of opposition in both countries, China will probably become a member of the WTO early next year.  The agreement is still contingent on getting approval in the U.S. Congress; and while that is not a certainty, most observers believe that there is a good chance it will pass.  The main proponents are advocates of free trade and U.S. companies that see China as a potentially huge market for their products and services, particularly in banking and telecommunications.  President Clinton is pushing hard to get congressional support:  "The China-WTO agreement is good for the United States, it's good for China, and it's good for the world economy," he said in a speech earlier this week.

There's no doubt that Chinese integration into the world economy will affect trade patterns in the years ahead.  It has the potential to flood the world market with relatively inexpensive manufactured products, and it has over a billion consumers who could potentially buy goods and services from the rest of the world.  The country's population is larger than the United States, Western Europe, and Russia combined.  It is possible, however, to overstate China's potential to import and export in the near term.  For one thing, the consumers in China are still relatively poor by international standards, and effective market demand is both a function of numbers and the ability to pay.  Secondly, the recent dramatic rise in Chinese exports is deceptive, because China began its export growth from a very low base and small volume of exports in the 1970s.  Third, China is a long way from developing high tech products for export that command high prices in the international market.  China will have to sell thousands of swizzle sticks to purchase one high tech scientific instrument from the west.

Trade patterns emerge according to comparative advantage.  It is most strategic to develop a comparative cost advantage in something that is scarce on the supply side and very desirable on the demand side.  This will improve your terms of trade.  China's fundamental problem is that its comparative advantage in low skilled labor is not very scarce and the products that it sells are neither unique nor exceptionally valuable.  The countries that are most at risk to lose export market share to China are its neighboring Asian nations like Thailand, Korea, Taiwan, Indonesia, and Malaysia.  [See Pictorial Below].  China's threat to steal market share and jobs away from workers in the United States is not as consequential.  Most of those relatively low skilled jobs have already been lost -- first to Japan, later to other Asian countries, and more recently to Mexico.

We can compare China's entry into the WTO to the young panda bear recently born in the United States.  The cub was born to a pair of pandas that China gave the United States as a goodwill gesture when President Nixon visited China in the 1970s.  That pair of pandas represents the old China.  The new cub is being cared for and nourished in the same way that the United States is now supporting China's entry into the WTO.  It represents the new China.  It's young, hungry, and growing.  Right now it's gobbling export market share from its Asian neighbors.  Over time, it will grow up to be a big bear.  As a mature adult it may be friendly and good natured or it may become fierce and intimidating.  Because of its sheer size, China will be a major force in the global economy in the new millennium.

However, it will be a long time before China catches up to the United States, Japan, and Western Europe in industries such as autos, heavy equipment, technology, education, and international services expertise.  It is far behind in these sectors, and its political and economic infrastructure is not conducive to rapid innovation.  For these reasons, China's rank as the world's 9th largest merchandise exporter is not likely to change dramatically in the short term.  The industrialized countries ahead of it are continually moving forward with new innovations of their own and will likely hold their positions as leading exporters of the world's relatively valuable goods and services.
 

The World's Top Ten Exporting Countries in Merchandise, 1998

Rank	Country	Exports (f.o.b.)	World Share
1	United States	$ 683.0 billion	12.7 %
2	Germany	$ 539.7 billion	10.0 %
3	Japan	$ 388.0 billion	7.2 %
4	France	$ 307.0 billion	5.7 %
5	United Kingdom	$ 272.7 billion	5.1 %
6	Italy	$ 240.9 billion	4.5 %
7	Canada	$ 214.3 billion	4.0 %
8	Netherlands	$ 198.2 billion	3.7 %
9	China	$ 183.8 billion	3.4 %
10	Hong Kong*	$ 174.1 billion	3.2 %

Recommended Link: The World Trade Organization