Free trade with China a path to growth

Commentator David Frum

TEXT OF STORY

Bob Moon: Hillary Clinton is on her first trip overseas as secretary of state. She's making several stops in Asia, hoping to broaden economic ties at a critical time -- just when coordinated global action is needed to improve the flow of trade and financing.

Just today, China pledged to keep its exchange rate stable and use its foreign currency reserves to boost imports and consumer spending. Still, commentator David Frum thinks it's a good time to ask China to do even more.


DAVID FRUM: The great bulk of the money in the so-called stimulus bill won't be spent for months. That ought to be a big defect in a bill advertised as a response to economic emergency. But the Obama team has an answer: Big government spending, they insist, can accelerate economic growth over the long term.

OK. It's never worked before, but who knows? Still, it might be smart to have a back up plan for accelerating growth down the road. Here's an idea: This would be a very good moment to propose a free-trade agreement with China alongside the agreements the US already has with Canada and Mexico.

China has risen to become America's number two trading partner. Yet trade with China is fraught with difficulties: a manipulated currency, courts that are biased in favor of locals, and all kinds of non-tariff barriers. For years China has shrugged off US demands for reform. They might be more responsive now.

China is facing its gravest economic crisis since opening its markets in the late 1970s. By some estimates, as many as one-fifth of the factories in Guangdong province have already closed. Demand for electricity has crashed, wages in Chinese factories have dropped by half. And still the export slump continues to worsen.

Facing this crisis, China might pay a lot for expanded access to the U.S. market. It might consider lowering trade barriers. It might agree to manage its currency in ways less injurious to the United States. It might make concessions on intellectual property. Or maybe not. But there will never be a better moment to ask.

When trade barriers drop, global economic growth accelerates. We saw that effect most dramatically after the Kennedy Round in the 1960s. We could see it again if China more fully joins the world economy. Freer trade alone will not contribute much to solving the immediate crisis. But we can use the immediate crisis to promote freer trade with an important but reluctant partner -- and to build stronger prosperity in the decade ahead.

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