Assad Raza is a retired U.S. Army Civil Affairs Officer with deployment experience throughout the Middle East. He holds a M.A. in Diplomacy with a concentration in International Conflict Management from Norwich University, and a M.M.A.S from the U.S. Army Command and General Staff College. He can be found on Twitter @assadraza12. Divergent Options’ content does not contain information of an official nature nor does the content represent the official position of any government, any organization, or any group.
Title: Assessing U.S. 1990s – 2000s China Trade Policy’s Effects on U.S. National Security
Date Originally Written: May 23, 2023.
Date Originally Published: June 5, 2023.
Author and / or Article Point of View: The author believes that the trade policy between the U.S. and China during the 1990s to 2000s resulted in the growth of China and wider socioeconomic disparities within the U.S. due to the relocation of manufacturing overseas.
Summary: During the 1990s and 2000s, U.S. trade policies hurt the U.S. middle class as manufacturing jobs moved China. This movement enabled China to become an economic powerhouse and greater military threat to U.S. interests. However, recent policy developments offer hope for rebalancing trade between the two nations and revitalizing domestic manufacturing to fortify the U.S. middle class, as it had been before the end of the Cold War.
Text: After World War II, the U.S. experienced a significant increase in demand for manufacturing, both in the private sector and the military industrial complex. The post-war population began spending more on a wide range of goods, including new cars and home appliances. Simultaneously, the government invested heavily in military equipment, primarily due to the escalating Cold War tensions with the Soviet Union. This surge in manufacturing activity not only created numerous job opportunities across the nation but also played a pivotal role in fostering the development of one of the strongest middle classes in U.S. history[1]. However, with the conclusion of the Cold War, the United States initiated trade liberalization with multiple countries, particularly China. This shift in trade policies facilitated China’s rise as a global power but had a detrimental impact on the U.S. middle class, as numerous manufacturing jobs were outsourced overseas.
The U.S. failed to foresee the ramifications of opening up trade with China in the 1990s to 2000s, which had a significant impact on the middle class and contributed to China’s emergence as a strategic competitor. U.S. Representative Ro Khanna (D-CA) highlighted these effects in a Foreign Affairs article, stating that “Since 1998, the widening U.S. trade deficit has resulted in the loss of five million well-paying manufacturing jobs and the closure of nearly 70,000 factories[2].” Khanna also emphasized how the decline in manufacturing jobs had a particularly negative effect on Americans without college degrees, limiting their ability to achieve middle-class status. These adverse effects were largely accelerated by a policy passed in 2000 that named China as a permanent free trade partner for the United States.
In the year 2000, the U.S. Congress passed the Permanent Normal Trade Relations with China (PNTR) bill, which aggressively opened up trade with China. The bill received approval in the House with a vote of 237 to 197 and in the Senate with an 83 to 15 majority[3]. However, in 2016, economists reported that the predicted emergence of new jobs to replace those lost did not materialize following the exodus of manufacturing jobs to China as trade relations normalized[4]. While the intention behind this policy was to benefit U.S. economic interests and foster normalized ties with China[5], it came at the expense of the U.S. middle class, as evidenced fifteen years later.
These policies, which prioritized cheaper goods over U.S. middle-class jobs, have played a significant role in driving China’s rapid economic growth. Consequently, China’s economy has the potential to surpass that of the United States and become the world’s largest economy by 2050. Alongside its large population and increased military capabilities, this economic growth positions China as the most significant threat to the United States[6]. The long-term effects of the trade imbalance between the two countries have escalated tensions between the powers and continue to impact the U.S. domestic manufacturing job market. However, it is important to note that the responsibility for these consequences does not solely lie with the United States. China has engaged in various controversial practices to manipulate the situation in its favor, exacerbating the adverse effects of the trade dynamics.
The historical combination of low wages and an undervalued currency in China has provided strong incentives for numerous U.S. companies to relocate their manufacturing operations there. The availability of a large labor force, along with a lower cost of living and fewer labor regulations, allowed Chinese companies to exploit their workers with low compensation[7]. Additionally, the Chinese government over the years has implemented currency management policies, intentionally keeping the value of its currency relatively low in comparison to major currencies such as the U.S. dollar[8]. This combination of factors, including low wages and an undervalued currency, created a significant cost advantage for U.S. companies engaged in manufacturing in China. By shifting production to China, these companies manufactured goods at a lower cost, thereby increasing their profit margins or enabling them to offer products at competitive prices in the global market. These practices, which have caused controversy, are meant to give China an economic edge by producing cheaper exports that add to the U.S. trade deficit and result in fewer domestic manufacturing jobs.
It is worth noting that the United States is taking steps to address the trade imbalance between China and the U.S. This inequality has persisted for over 20 years, and steps are being taken to encourage the return of manufacturing to the U.S. This return will not only help revive the middle class, but also reduce dependence on China, particularly in light of the global supply chain disruptions caused by COVID-19. The U.S. government has introduced several initiatives to achieve this goal, such as the Inflation Reduction Act, which aims to increase domestic energy production and manufacturing by 40 percent by 2030[9]. Another initiative is the CHIPS and Science Act, which offers incentives for domestic semiconductor production in response to the impact of the pandemic[10]. Despite these efforts, the loss of manufacturing jobs to China has already taken a toll on the U.S. middle class, and it may be difficult for them to fully recover to the level it was at the conclusion of the Cold War.
Endnotes:
[1] Pruitt, S. (2020, May 14). The post World War II boom: How America got into gear. History.com. https://www.history.com/news/post-world-war-ii-boom-economy
[2] Khanna, R. (2022a, December 20). The new industrial age. Foreign Affairs. https://www.foreignaffairs.com/china/ro-khanna-new-industrial-age-america-manufacturing-superpower
[3] Tankersley, J. (2016, March 21). What republicans did 15 years ago to help create Donald Trump today. The Washington Post. https://www.washingtonpost.com/news/wonk/wp/2016/03/21/how-republicans-helped-create-donald-trump-more-than-15-years-ago/
[4] Autor, D., Dorn, D., & Hanson, G. (2016). The China shock: Learning from labor market adjustment to large changes in trade. National Bureau of Economic Research. https://doi.org/10.3386/w21906
[5] Clinton, W. J. (2000, May 24). Remarks by the president on passage of permanent normal trade relations with China: The Rose Garden. U.S. Department of State. https://1997-2001.state.gov/regions/eap/000524_clinton_china.html
[6] Spillane, J. (2023, March 20). Can China surpass the United States as the next world superpower?. LSE International Development. https://blogs.lse.ac.uk/internationaldevelopment/2023/03/20/can-china-surpass-the-united-states-as-the-next-world-superpower/
[7] Plekhanov, D. (2017, December 13). Is China’s era of cheap labor really over? The Diplomat. https://thediplomat.com/2017/12/is-chinas-era-of-cheap-labor-really-over/
[8] Morrison, W. M., & Labonte, M. (2013, July 22). China’s currency policy: An analysis of the economic issues – CRS report RS21625. Congressional Research Service (CRS). https://crsreports.congress.gov/product/pdf/RS/RS21625/70
[9] U.S. Senate. (2022). Summary: The inflation reduction act of 2022 – senate. Senate.Gov. https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf
[10] Bennet, M. (2022). Chips and science act of 2022 section-by-section summary – U.S. Senator Michael Bennet. U.S. Senate.Gov. https://www.bennet.senate.gov/public/_cache/files/4/0/40919cb4-ff63-4434-8ae2-897a4a026b30/7BCDD84F555A6B85BEC800514F1D3AFD.chips-and-science-act-of-2022-section-by-section.pdf