The Diplomat - 13 February 2021
Could Biden make US-China trade better for workers?
By Michael Haack
In November, the Siberian anticyclone blows cold, dry air into Beijing. Lakes freeze over, and social life moves indoors.
There was an icy fog on the November evening in 2017 when fire engulfed an informal structure on the sprawling megacity’s periphery. Nineteen migrant workers died in the blaze.
City plans called for a reduction in Beijing’s “low-end population,” and its administrators used addressing fire safety as a pretext to comply. Over the following two weeks, police went door to door evicting migrant workers, often giving them only a few hours to clear their belongings before their homes were demolished.
Up to 100,000 migrant workers — people denied access to social services by dint of leaving their officially registered hometown — were summarily cast into Beijing’s winter. Without the right to access subsidized housing, migrant hukou holders often live in informal “urban villages” that have become targets of cities’ modernization efforts.
Of more global significance, their residency status makes them cheap to hire because employers can avoid paying benefits and because these migrant workers, who are more likely to work without contracts, are more easily subject to wage exploitation.
The closest the United States has to this type of tiered citizenship is its 10.5 to 12 million undocumented migrants, whose wages are suppressed by a lack of legal status, as well as the 20 to 23 million Americans whose felony convictions hamper their earning potential. These groups total roughly 9 to 10 percent of the U.S. population, compared to China’s 291 million workers whose hukou don’t match where they work.
American workers have struggled to compete with China’s low wage economy, placing downward pressure on U.S. jobs and wages.
MIT economist David Autor’s 2016 study estimated that companies relocated 2.4 million manufacturing jobs from the United States to China since 2000. Autor also found that it was the regions most affected by competition from China that flipped from blue to red in the 2016 election. This “China shock,” however, has not been limited to the stereotypical Trump voter.
“Black people are more prevalent in sectors that are hurt most by trade than we often appreciate,” said Daniella Zessoules of Groundwork Collaborative. Take Milwaukee for example. As the factories left, Black unemployment soared. By 2010, only 52.7 percent of Milwaukee’s prime working-age Black males were employed (down from 85 percent in 1970).
Meanwhile, even as China grows, its wealth remains largely with companies and the government. Individual households capture only around 40 percent of China’s GDP compared to around 70 percent in the United States. Inequality has soared. China’s official Gini coefficient is at 0.47 (independent analyses put the number considerably higher) compared to 0.39 in the U.S.
“Chinese workers are underpaid and overtaxed, so they can’t afford to spend as much on goods and services,” said Mathew Klein of Barron’s. “The result is that Chinese businesses systematically generate a surplus of goods that gets dumped on the rest of the world, which in turn leads to some combination of deindustrialization and rising indebtedness.”
Concern for the United States’ industrial capacity has led populists to rally for “decoupling.”
For its part, China would also prefer to not rely on the United States for consumers and technology. In a recent speech to Asia-Pacific Economic Cooperation (APEC) CEO Dialogues, Xi Jinping was clear that “making domestic consumption the main driver of its growth” is the priority for China.
While parties on both sides have called for a distancing, the counties’ asset-holding elites have become further entwined.
Promising a fairer deal with China, former U.S. President Donald Trump launched a tariff war in 2018, which reached a partial resolution with the Phase One deal on January 15, 2020. The deal dovetailed with China’s domestic efforts to remove barriers on financial services and strengthen intellectual property rights.
On April 1, 2020 China removed the caps on foreign ownership of financial services, letting U.S. firms soak up more of the profits from their operations in China. The Wall Street giants were quick to respond. Within days, JP Morgan committed $1 billion to buy the other 49 percent of its joint venture in China. Goldman Sachs and Morgan Stanley soon followed. This just added to the steady increase in U.S. investment into China over the last two decades.
Additionally, $2.2 trillion worth of Chinese companies are capitalized on U.S. markets.
These financial entanglements indicate that distancing can only lead to a “messy divorce,” according to Raghuram Rajan of the University of Chicago. “They are tied together in so many ways – trade, investment, tourism, student and academic exchanges – as well as distrustful on so many issues,” Rajan said. “Looks like a bad marriage to me, and they need to figure out how they work out their differences.”
Since a total decoupling is not in the cards, could the Biden administration’s approach to the U.S.-China relationship bear fruit for workers when one considers that any worker related demand is likely to have to be balanced against the interests of the financial sector?
Since the 1990s even when labor provisions were secured in trade agreements, there was little hope of enforcement. Though 14 U.S. free trade agreements have labor provisions, only seven complaints have ever been submitted and only one resolved. This, however, may be changing.
“Trump’s ham-fisted, clumsy, cynical, ignorant, desire to approach trade from a different angle did allow for greater attention to issues like labor rights than anyone thought was possible,” said Trevor Sutton from the Center for American Progress.
When the United States-Mexico-Canada Agreement (USMCA), a.k.a. NAFTA 2.0, was signed at the end of January, 2020 the list of people that celebrated it included Donald Trump’s brash conservative trade representative, Robert Lighthizer; AFL-CIO president Richard Trumka; and a folk singer named Ryan Harvey, who cut his teeth protesting the evils of capitalism before joining Global Trade Watch.
In order to be in compliance, the Mexican Congress had to pass a new labor law. Employers in Mexico can be brought to a court chaired by the U.S. trade representative (USTR) and secretary of labor for violating their workers’ right to form a union. If the dispute is unable to be resolved bilaterally, then the United States may directly sanction the Mexican company for violating workers’ right to organize. The new NAFTA also mandates that 40-45 percent of car components be made by a worker earning at least $16 per hour, or be subject to tariffs.
The USMCA will rely on activists to bring cases, something that has caused many to question its applicability in authoritarian contexts. The recent experience of Vietnam and the Trans-Pacific Partnership (TPP), however, may be more analogous to what could be possible with China.
While the TPP was being negotiated, Vietnam’s manufacturing sector was experiencing a long wave of wildcat strikes. Many reformers believed the answer was to give workers a legal avenue to organize and collectively bargain. The TPP negotiations were able to provide cover for the reformers in this system and nudge the skeptics to reform Vietnam’s labor laws.
Though the labor agreement fell apart when the United States pulled out of the TPP, Vietnam has recently legalized “worker representative organizations at the enterprise level,” said Joe Buckley of Vietnam Labor Update. It has also signed on to certain International Labor Organization (ILO) collective bargaining conventions that strengthen workers’ right to organize, a first for the one party “socialist” state.
A Worker-First Approach to China
Like Vietnam, China’s industrial sector faced a wave of strikes in the 2000s and 2010s. In China, just as in Vietnam, reformers in the country’s single party-controlled union federation began to experiment with collective bargaining, especially in the manufacturing hub of Guangdong province. Talk about instituting a “right to strike” emerged amidst a strike wave in 2010.
Then came 2013. Xi Jinping took the reins of the Communist Party and set out to remake China and the crackdowns began. Labor NGOs, labor studies professors, progressive labor lawyers, and even Marxist students have been shut down, arrested or otherwise silenced.
“Although China enacted a series of pro-worker laws in the late 2000s, many of these provisions are poorly implemented,” said Eli Friedman, professor at Cornell University (Disclosure: Eli Friedman is one of the author’s supervisors at the China Labor Translation Project). “As has been the case in countless other countries, China would likely experience reduced inequality and greater domestic consumption if independent trade unions were allowed to flourish — thus advancing their own stated policy aims.”
“Biden should approach China with a big ask, with Vietnam there as precedent,” said Friedman.
Rather than the zero-sum competition between U.S. and Chinese corporations, a worker-centered economic relationship has the possibility of advancing the well-being of hundreds of millions of people on both sides of the Pacific.
Greater supply chain oversight could also benefit enforcement of labor standards. Building on ideas he set out in Democracy Journal, Andy Green of the Center for American Progress said, “As Europe and others are recognizing, labor practices are essential aspects of environmental, social and governance disclosures, which all the major global capital markets should require… Transparency is a powerful disinfectant: if companies are caught lying, they can be sued in court.”
Though increasing the price of labor in China would surely put pressure on production to leave, as some already has, a few factors serve to curb this risk.
First is the massive amount of state investment that China offers. Consider the Foxconn electronics plant in Zhengzhou. Zhengzhou’s government offered $8.8 billion in tax breaks and other incentives for the company to locate there. On top of that, the plant’s opening came on the heels of a $10 billion investment in the city’s infrastructure – notably, expanding its airport so that Apple could fly new iPhone models out in time for launches around the globe. Few other countries can compete with this level of corporate subsidy.
Second, many American companies produce in China to access the Chinese market. Though such products and services may not show up in trade statistics because they never cross a border, the profits do. General Motors (GM), for example, currently has 27 plants operating in China, almost all of the cars from which are also sold in China. Since 2010 GM has made $16 billion from these operations. That’s another deal that American industry will be hard pressed to abandon. The only realistic option may be policies that make the current relationship a little better for workers.
Of course, the amount that is accomplished depends on the administration’s willingness to push. China has been resistant to labor agreements in trade deals as is clear from the recently signed Regional Comprehensive Economic Partnership — a Beijing-backed initiative that makes no mention of labor whatsoever.
But the United States still holds significantly more economic power in the international system. City University of Hong Kong scholar Sean Kenji Starr has documented how American capital continues to dominate in most major sectors. The next administration could work to leverage its ability to regulate American investments, as well as Beijing’s continued dependence on American markets and capital, to increase the power of workers.
In January 2020, as COVID-19 ravaged Wuhan and outrage over the initial coverup of the virus grew, it seemed to many that China’s authoritarian model had been discredited. Less than a year later, the virus is wreaking havoc in the U.S. and Europe, while China’s model appears to have shown significant resiliency. But behind the V-shaped recovery, China is struggling with the same macroeconomic imbalances that it has struggle with for two decades.
Construction sites and factories can be pushed to run at full speed but squeezing demand out of a still largely low-income population is a different matter. China is again producing more than its population can consume and, as a result, flooding international markets. The United States is again acting as China’s consumer of last resort. By insisting that China allow workers to fight for their fair share of national wealth, the Biden administration could diminish this codependence and help workers at the same time.