HOW TO ACCOMPANY THE RISE OF A MIGHTY CHINA

by Jeffry E. Garten

The Herald Tribune, January 16, 1996

NEW HAVEN, Connecticut - In the waning years of the last century, Americans were preoccupied with industrial mergers, urban chaos and unrest in the Philippines and Cuba. Only a few military strategists predicted the real threat to the global status quo the rise of Germany and Japan. Today, on the cusp of a new millennium, we again risk losing sight of the most important global challenge facing America: the rise of China, already a military power but soon to be one of the world's largest economies. That is where any discussion of the United States and China should begin - not with tensions over Taiwan and not with human rights violations, repugnant as we may find them. If Washington focuses solely on China's military conflicts and human rights violations, it is destined to become enemies with Beijing. A strong trade relationship remains our best chance to avoid that and to plant the seeds of democracy in China. There is no time to lose. To have an effective partnership, we need a better trade balance. Our def

icit with China is second only to our imbalance with Japan, and it is growing at a much faster rate. In the late 1980s the deficit was just $2 billion. In 1995 it was more than $30 billion. This is not yet an emergency, not in our $7 trillion economy, but the warning lights are flashing. The potential for trade with China is enormous. At least until the end of the century, China plans to import more than $100 billion in goods each year. Competition for that trade is brutal. Presidents and prime ministers from Britain, France, Japan and Germany have offered China billions of dollars in low-interest loans, which are tied to the purchase of their countries' products. But more is at stake than money. American companies are our only major link to hundreds of millions of Chinese people. When AT&T connects Chinese citizens to anyone in the world, or when Procter & Gamble upgrades safety standards for its Chinese workers, some of our human rights goals are met, too. Advocating greater commercial engagement with Chin

a is easier than carrying it out. Beijing has imposed huge industrial tariffs and a host of trade barriers in financial services. Indeed, the Clinton administration may soon announce that it is imposing sanctions on China for violating agreements on intellectual property rights. But America must think beyond the next skirmish. Trade should not be a threat to the relationship, but the glue that strengthens it. Here are some ways to develop a long-term strategy:

Push harder to admit China to the World Trade Organization. It must meet global commercial rules, and it has a long way to go, but the United States should not be excessively legalistic, as it often is in trade negotiations. It is better to have China inside the club, and subject to global sanctions if it strays from the rules, than outside it. a Ask allies to help. Washington should marshal its allies to pressure China when necessary. Going mano a mano with Beijing, be it overintellectual property rights, human rights or arm sales, is increasingly ineffective. End self-defeating threats to stop trade. Congress should stop threatening to revoke trading privileges every time there are human rights violations. Such light-switch diplomacy undercuts our chances for meaningful longterm commercial ties and ignores the speed at which China could substitute Europe's Airbus for Boeing's planes. Human rights violations need to be vigorously denounced in the United Nations as well as in discussions between our two gove

rnments, but interrupting trade only backfires.

Help American companies expand trade. Washington should immediately upgrade efforts to help its companies win contracts in China, including providing financial assistance. Expand the definition of economic engagement. The United States should step up efforts to help China develop a modem financial and legal system, from stock market regulations to commercial courts. Develop a long-term vision. The United States and China need to talk regularly at cabinet level about the future of trade between the two countries - what the two sides envision in the 21st century and how to get there. Little such discussion now occurs, because tensions of the moment always preempt everything else. The United States and China will be the two global giants for several generations. Placing American-Chinese trade at the center of our global interests prepares us for the next century more effectively than our forefathers did a hundred years ago.

The writer is a former undersecretary of commerce in the Clinton administration and current dean of the Yale University School of Management. He contributed this comment to The New York Times.