Yet things didn’t go entirely as planned. During China’s first decade in the WTO, its exports to the United States greatly outpaced its imports from the United States, ballooning the bilateral deficit. The unbridled access to Chinese markets promised to U.S. companies never materialized, nor did a surplus of high-paying jobs suddenly appear across America. For many in the Trump administration, especially people like the economic advisor Peter Navarro and U.S. Trade Representative Robert Lighthizer, the decision to bring China into the WTO sold average Americans out to U.S. political and business elites.
The reality is, of course, more nuanced. But the imperfect promises and unaddressed legacies of China joining the WTO inform where we’re at today.
Normalizing trade relations with China was a mistake
In retrospect, the United States wasn’t ready for the dislocation caused by the unprecedented scale of China’s economic rise. Smaller than France in 2001, China is now the world’s largest economy by some measures, and its preeminent trading power. Economists now acknowledge that the confluence of two factors—China’s rapid economic rise, and increased American exposure to Chinese exports that followed its membership in the WTO—adversely affected the employment and wages of many American workers in the early 2000s. A landmark study by the MIT economist David Autor attributed the loss of 985,000 manufacturing jobs in the United States from 1999 to 2011, or about 20 percent of the total job losses in the sector during this period, to the so-called China shock of exposure to increased competition from China. Those who support the 2001 decision suggest that attempts to keep China out of the WTO would have likely delayed rather than prevented these adverse effects. With its vast supplies of cheap labor, China had ready-made advantages when it came to churning out low-cost manufactured goods for export.
While U.S. policy makers missed the mark on China’s staggering rise, they also overestimated the extent to which its exposure to global competition through the WTO would force it to reform its economic system. Today, achieving fair trade with China means addressing the single most prominent feature of its economy: the deep connection between the ruling Communist Party and commercial institutions, like banks and other state-owned enterprises. When state-run banks in China provide below-market-rate loans to companies controlled by the government, this acts as an implicit subsidy to those firms’ goods.
In pushing for China’s economic integration with the West, successive U.S. presidents believed that competition would naturally obviate the challenge posed by these sorts of economic distortions. Competition, so the logic went, would force Chinese firms to privatize, become more efficient, and compete on a level playing field with their American counterparts. In reality, China has embraced a sort of à la carte globalization, adopting the rules and standards it finds most useful—like the ability to expand its companies and investments abroad—while discarding those that threaten its unique political and economic model, such as allowing foreign firms to invest and operate freely in China.