Chinese membership in the WTO: beneficial for the US or not?

Introduction

China joining the World Trade Organization, abbreviated as WTO, was an issue that sparked a lot of debate on whether it was the right move and whether the Chinese would benefit from this. Several arguments were made about how this move would be detrimental to the Chinese economy. For instance, the Chinese economy was mostly communist. Joining the World Trade Organization would only lead the nation’s economy on a path to becoming capitalistic. Very few individuals were optimistic about this move. In addition to this, the smaller Asian countries felt that the Chinese joining the WTO would threaten their exports. This concern was valid given the fact that Chinese import duties would decrease and exports increase; posing a threat to smaller Asian nations (C. Devereaux, 2006). This was not the only concern for the nation. There was also the issue of how this would affect trade relations with the United States (Nolt, 1999). There are several groups of thought on whether China joining the WTO would be a good move for the United States and the global economy in general. It is important to look at various studies and come up with convincing reasons as to whether the move would be beneficial or not.

In Support

China joining the WTO has divided scholars into two major groups. There are those scholars who support the move made by China to join the WTO. The other group feels that this is a wrong move and it will negatively affect its relations with the United States. By the time that the People’s Republic of China was making the final decision to join the World Trade Organization, China had been trading with the United States for some decades (Ramesh Adhikari, 2002). In addition to this, the two economic partners had normalized diplomatic relations with each other for approximately twenty-one years (Chow, 2001). Therefore, the two partners saw each other as equals in the world arena of global commerce. The shift that China made had effects that would affect the United States.

The scholars who were of the opinion that accession to the WTO is a good change for China noted that economic growth was good for China and U.S.A. trade (Narlikar, 2005). As mentioned earlier, the U.S. and China were industrial partners. Accession to the WTO for China would only mean more business for the nation and economic growth. Joining the global market would lead to the globalization of the Chinese market (Wang Z., 1997). Frazier, notes, “These studies, basing their estimates of export growth and other measures on proposed tariff cuts and the gradual removal of non-tariff barriers, generally overlook one important fact: the continued growth of the Chinese economy… It is in the long-term interests of the United States and China’s other trading partners to encourage the growth of the Chinese economy” (Frazier, 1999). Frazier notes that better trade in China will only lead to a better trade with the United States: a win-win situation for all parties involved. Hu projects that “China’s total trade (imports and exports) would double to $600 billion in 1998 if China were to accede to the WTO under the terms of the offer made during Zhu Rongji’s visit to the United States” (Hu, 2002). Therefore, positive growth was already anticipated ahead of the accession to the World Trade Organization.

Rosen, another supporter of the membership of the WTO notes how the increase in trade in China will be beneficial to the United States. The two economies are heavily interdependent. Therefore, an increase in trade in one will lead to more income for the other (Chang, 2002). He notes, “A recent study by the Institute for International Economics (IIE) estimates that China’s joining the WTO under the terms of Zhu’s offer would result in an immediate $3.1 billion increase in U.S. exports of goods and services to China. This represents a 13 percent increase over 1998 levels of U.S. exports of goods and services to China.” (Rosen, 1999). The supporters of the China’s WTO membership were very optimistic about the move that the Chinese made in 2001. The forecasts on the volume of trade from the United States to China showed an increase in trade; a desirable effect of the move (Zhang, 2005). Increased trade from the United States to a significant economic player like China would only translate to increased incomes for the nations that are involved in the trade (Wang D., 2013). Several proponents say that China joining the WTO would lead to the trade regime being more open. An open regime in China would encourage export competitiveness (Yong, 2011). Such a phenomenon later encourages the United States to compete in the world market for the same clients offering better quality products at competitive market prices.

In Opposition

The group of opponents to the entry of China into the WTO is a very small one. Very few argue against the move made by China in 2001 (Prime, 2002). The general perception is that there are several issues that arise when it comes to employment and China joining the WTO. For instance, it is projected that approximately ten million jobs will be lost in several sectors of the Chinese economy; especially the manufacturing sector. However, the same number of jobs will be created in the service sector. This upheaval of jobs can lead to economic instability since so many will lose employment and others will gain them rapidly (O’Bryon, 2012). The Chinese government had previously closed down the sectors of telecommunications, banking and insurance (Chow G., 2002). The entry into the WTO led to the opening of these sectors to foreign investment and development.

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The Chinese put up a condition that required the cooperation of the foreign firms to collaborate with locals in developing these technologies in Chinese companies (Morrison, 2012). Thus, these technologies are being transferred to the Chinese who are perfecting this skill. O’Bryon notes, “… this plan’s policies seemed intent on extracting foreign technology as the price of access to the Chinese domestic market, by requiring firms to share their technology through joint venture relationships, threatening the loss of their intellectual property” (O’Bryon, 2012). Thus, the companies in the United States stand to lose their technology to the Chinese by agreeing to trade in the country. This move can be not so beneficial to the United States since they will lose their intellectual property and the Chinese can profit from this loss (Alford, 1999). The risk is very considerable considering that out of the 500 top global enterprises, 480 have a presence in China (Bown, 2009).

Finding the Gap in the Data

Much has been discussed the effects and implications of the PRC joining the WTO. Of the two schools of thought, the proponents of the move being beneficial to the United States have put up a very convincing case. The evidence that the accession to the WTO has been beneficial to China is very convincing (Prime, 2002). The principles behind the move are well placed and work in favor for China. However, there is little information about how this move will affect the smaller countries. It is a fact that the United States trades with numerous other nations. These nations include the economically smaller neighbors of China like Japan, India, and Singapore (just to name a few) (Rozan, 1995). These nations have a hard time trading considering the large volumes of product that leave China annually. The move to accede to the WTO seems to threaten them even more.

McCulluch notes that, by the time China was acceding to the WTO, it was well on its way to overtaking Japan as the main exporter to the United States in the region (McCulloch, 2009). Therefore, much more information is needed on how the move made by China is affecting trade between its neighbors and the US. This information will provide a much wider view of the needs of the United States and whether the move made by China is affecting its global position. Basic economic principles highlight the importance of having a trade that is balanced (Paul R. Krugman, 2006). Poor trade among the United States and China’s neighbors could affect the regional trade and make the trade in the region unsteady (James Agarwal, 2004). Therefore, it is important to note that the effects of China acceding to the WTO on the United States has been established (Holliday, 2012). More light should be shed on how this move affects its neighbors and also how the impact on the neighbor affects the United States. It is critical that scholars recognize the far reach of globalization and how it affects the global and local economies (Terry Clower, 2016). Thus, the information is necessary so as to fill this gap.

Conclusion

In conclusion, the move by China to accede to the WTO was beneficial to the United States. The benefits of the China acceding to the WTO far outweigh the negative ones. The United States stands to gain the most from China’s economic development given how interdependent the two economies are. China joining the WTO led to increased trade in the country. This positively affected the economy in the United States since the country could send more exports to China and FDI was directed to China. Thus, surplus income was generated.  However, the intellectual property being transferred to China is threatening the global companies in that China is gaining and stands to gain more from this foreign technology. There is much information needed on how China’s move affects its neighbors’ trade with the United States; that is the gap in the data.