- The Washington Times - Tuesday, May 30, 2000

Just as important as the economics of U.S.-China free trade, the political significance of permanent normal trade relations (PNTR) with China may be even greater.

In the discussion of PRC human rights abuses and religious persecution, points made by China free trade opponents on both the left and the right, let us not forget it is home-grown pro-democracy Chinese reformers who are the strongest advocates of China's entry into the WTO. They believe that free market liberalization will gradually unseat what is left of the communist dictatorship in Beijing.

Along with expanded trade, let's also not forget that U.S. technology exports to China one of the biggest beneficiaries of the free trade pact will carry with it a huge export volume of information concerning how people in the U.S. and the rest of the free world live, work, vote, raise families, pray and prosper. In other words, the benefits of freedom.

Even the smallest China opening to the Internet appliance revolution will eventually create a massive inflow of Western values. According to the Treasury Department, more people speak English in China than in the U.S. So the barrier is trade protection, not language. Once that barrier falls, it is the beginning of the end of totalitarianism.

None other than Chen Shui-bian, the newly elected president of Taiwan, agrees with this view. American critics of China free trade argue that economic openings will not lead to political liberalization. But on-the-ground participants in Taiwan and mainland China disagree. Who do we think is more credible? Armchair experts or those who put their life on the line? Give me the curbside players anytime.

For these reasons, Taiwanese leaders have long favored the PRC's entry into the WTO. And this point alone should give pause to the criticisms leveled at PNTR by union leaders and the religious right. If China free trade is a losing proposition, then no one would presumably have more to lose than Taiwan. But the Taiwanese are for it.

So much of the media coverage of this debate has been focused on the muscular political support of U.S. big business, which indeed has worked hard for passage. Yes, America's modest $64 billion of cumulative exports to China over the past five years will probably increase tenfold before long.

So the $69 billion trade deficit registered with China in 1999 will hopefully shrink. And America's children will continue to buy inexpensive baseball caps, mits, sunglasses, basketballs, swim trunks and sneakers from China.

But I believe all this is of secondary importance compared to undermining the last significant experiment in state socialism on the planet.

It is also true that 46,000 businesses on mainland China are owned by Taiwan nationals. But the really essential point is the preservation of Taiwan's democratic system. That is why it is so significant that Taiwan supports PNTR. They believe free trade will enhance, not damage, Taiwanese freedom.

In this sense it is also important that PRC China supports Taiwan's entry into WTO. During the presidential primaries last winter, Republican candidate Steve Forbes supported PNTR with the condition that Taiwan receive the same privilege even before China.

It is this thought that has prompted Rep. David Dreier, California Republican and chairman of the House Rules Committee and Republican floor leader on the bill, to support simultaneous WTO entry for Taiwan. "We are all defenders of Taiwan; we can, and will, stand by Taiwan," Mr. Dreier told me.

Mr. Dreier not only is a staunch free trader, and a committed supply-sider, he has also become an apostle of the new Investor Class. "Did you know," he asked me, "that there are more shareholders in China than members in the Communist Party?" Well, no, I didn't know that. But perhaps we can grant them a 2 percent of payroll tax rebate to invest in personal retirement accounts when George Bush reforms Social Security.

Speaking of U.S. politics, the successful PNTR vote may also have barn-burning importance here at home. Old economy trade unions have made this issue very visible, committing large chunks of lobbying money and virtually all their prestige to the vote.

So PNTR passage signals a big defeat for old economy politics and a big win for Internet economy politics. Steelworkers, Teamsters and the Union Auto Workers have made this vote a litmus test for Democrats. The UAW has gone so far as to threaten an endorsement of Ralph Nader over Al Gore.

But this old backbone of the Democrats is not much of a backbone anymore. While hi-tech jobs have been increasing at a 5 percent yearly rate since the current recovery cycle began in 1991, manufacturing jobs have grown by only one-tenth of a percent annually. Even with massive downsizing and restructuring, financial services industry jobs have increased 2 percent yearly. Investors and shareholders, meanwhile, have expanded by more than 40 million.

So in the workplace, even these sketchy numbers show the real force is with the new economy, which is voting free trade, not the protectionist old economy that opposes globalization. President Clinton is trying to shed the Democrats' old skin. But if the trade unions desert Al Gore, old skin will die hard.

Last Tuesday's Gallup poll confirmed the rise of new economy free trade support. The public approves of PNTR by a 56 percent to 37 percent margin. Even though voters are concerned about human rights and domestic job loses, by a 47 percent to 26 percent margin they believe trade would help human rights, and by 48 percent to 37 percent they believe the China/ WTO pact would help the U.S. economy.

Even for one brief shining moment the stock market managed to put aside Fed tightening fears and rally on the strength of a successful vote for U.S./China free trade. The economics of free trade are always pro-growth.

But PNTR will also strengthen the freedom-enhancing political forces of Good and Light in mainland China, Taiwan, the U.S. and the world over. Freedom is always the basis of wealth creation and prosperity. Score one for the good guys.



Lawrence Kudlow is chief economist of CNBC.com and Schroder & Co. Inc.

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