by Daniel T. Griswold
October 20, 2004
China's emergence as a major trading nation provides far more opportunity for the people of Canada than any danger it might pose.
Canada has long enjoyed historical ties to China through immigration, trade and investment. While some Canadian companies feel the pressure of competition from Chinese producers, their losses are far outweighed by the gains to Canadian consumers and producers.
Most Canadian families benefit unambiguously from trade with China. The shoes, clothing, furniture, toys and consumer electronics that make up a big chunk of Chinese imports keep prices down in discount stores and raise the real wages of Canadian families, especially those with middle and low incomes.
Canadian producers benefit from lower-cost inputs from China, such as computer hard drives and plastic mouldings. Those inputs allow Canadian-based manufacturers to retain their competitive edge in global markets. Canada's educated workforce and market-driven economy mean it will enjoy a comparative advantage in a range of advanced products and sectors for the foreseeable future.
Chinese exports have indeed grown rapidly, but there's been no tidal wave. According to the World Trade Organization, Chinese exports still represent only 6% of global exports, hardly a dominant position. In 2003, Canadians bought $18.6-billion worth of goods made in China compared to total imports to Canada of $335-billion and a Canadian GDP of $1.2-trillion. Is there really anything wrong with the fact that Canadians spend about 1.5% of GDP on products made by the one-fifth of mankind that lives in Mainland China?
There's no evidence that those imports have hurt Canada's industrial performance. In the past decade, Canada's industrial output has risen by 36%. If employment in manufacturing has lagged, it's only because Canadian manufacturing workers are becoming so much more productive. In fact, manufacturing productivity has been surging across the globe so much that even China is shedding net manufacturing jobs as it closes state-owned factories.
While politicians focus obsessively on imports from China, China has already become a tremendous growth market for Canadian exporters. Last year, China was the fourth largest market in the world for Canadian exports, behind only the United States, Japan and the United Kingdom. While Canada's exports to the rest of the world have risen 20% in the past five years, exports to China are up 91%. Provoking a trade war with China would hit millions of Canadian families in the pocketbook and put billions of dollars in potential exports at risk.
It's a myth that low-wage countries such as China are irresistible magnets for Canadian investors. The large majority of Canada's outward foreign direct investment (FDI) goes to other high-wage countries. That's where the rich customers live, where the workers are best educated, where the courts work and where trade and investment move freely. At the end of 2003, Canadians owned only $542-million in FDI stock in China. That's less than 1% of Canada's total FDI and far less than what Canadians have invested in France or the U.S.
It remains painfully true that the Chinese government systematically abuses the rights of its citizens to speak, organize, worship and raise children. But disrupting trade in the name of defending those rights would be futile.
Trade and globalization have already spurred social progress in China. After two decades of reform and growth, wages and living standards have risen dramatically. According to the World Bank, the number of people in China living on less than US$1 a day has dropped by 300-million -- the greatest anti-poverty program ever.
China's expanding middle class is experiencing the new independence of home ownership and cooperation with others in economic enterprise free of government control. The numbers of telephone lines and Internet users have risen exponentially in the past decade. Rising incomes have allowed Chinese families to buy their way out of Beijing's one-child policy.
Trade sanctions haven't worked in such backwaters as Cuba and Burma. Meanwhile, trade, economic reforms and growth have tilled the soil for democracy in South Korea, Taiwan and Mexico. Experience shows we can encourage political freedoms more effectively in China through trade and development than through sanctions. The best policy to promote labor, civil and political rights in China is to combine shining the spotlight of official criticism on China's abuses with encouraging an independent civil society through commercial engagement.
Trade with China is a win-win arrangement for the people of Canada and China. Canadians win as household consumers, workers, investors, and producers. The people of China win by being able to trade and work with people in one of the world's most advanced, free, and open economies. Disrupting that relationship by imposing new barriers to trade with China would be one of the most self-defeating policies a Canadian government could contemplate.
Daniel T. Griswold is director of the Cato Institute's Center for Trade Policy Studies.
[This piece originally appeared in the National Post (Canada) on October 20, 2004]