YOU MAY have thought that there is an inherent and unbridgeable conflict between a communist dictatorship and American free enterprise. Not so. Not if the price is right, as it is in the People's Republic of China.

Despite the bloody Beijing massacre of June 1989, American business has found the communist climate of the People's Republic quite congenial. Trade with the United States continues to flourish. U.S. exports to China last year were valued at $5.8 billion, and imports from China to the United States reached nearly $12 billion -- a total trade increase of 30 percent over 1988 levels.

Garments, toys, games, electronics, and footwear accounted for more than half of those imports into the United States. Many American toy companies, clothiers and department stores are doing a landoffice business with products carrying "Made in China" labels. In China, the profits go into the pockets of Communist Party officials who either double as businessmen themselves or parachute their sons, nephews and uncles into the offices of commercial enterprises.

Strangely, that kind of mutual backscratching of communists and capitalists has been praised as a sign that Chinese communism is reforming. But what those so-called reforms mean, mostly, is that American and other foreign business interests are free to enter into unholy partnerships with the Communist Party to exploit the Chinese people.

The events in Tiananmen Square -- televised live to the world -- showed the world how far the communist regime would go to repress its own people. How many other realities of life in communist China would shock the world if they could be viewed on television? Let us describe one: the Chinese prison system.

The 20 million persons now in China's prisons are more than prisoners. They are part of China's labor force, making products both for domestic and foreign consumption -- everything from socks and textile goods up to machine tools and automobiles. There is no problem about constructing new jails in China -- prisoners build them. One huge dam and water-power project was built by 1 million prisoners over a 10-year period. The total output of goods and services from prison labor is so large that it is routinely included in the country's GNP statistics. In fact, each prison has two names, one for its connection with the Public Security Department, such as Jail No. 1 of Cheng Tao, and the other for its role as a normal business enterprise, such as Cheng Tao Machinery Factory.

(It is not easy to identify which of the "Made in China" products reaching U.S. shores are made in prison. Senate investigators, however, recently did identify one: Dynasty wine, a joint venture between the Tianjin "wine-makers cooperative" and the French company Remy-Martin. The company said prisoners on farms had been used to supply grapes from 1982 to 1986 without its knowledge.)

The ingenuity of China's elite to exploit forced labor seems to know no bounds. Prisoners are also now available for leasing to private factories owned by foreign businessmen. In one case, a Chinese intermediary going by the name of Charles Chi offered to lease prisoners to any Western company wishing to open a factory in China.

China's prisons, its gulags, serve a political function that is even more important than their economic role. The prisons form a part of the communist structure to exercise tight political control and discipline over the people of China. Political prisoners serve as constant reminders to millions and millions outside of prison that they had better not deviate from party dictates.

Non-prison labor is kept under control through the All-China Federation of Trade Unions, which the party formed only months after taking power in 1949. The party's so-called "unions" exercise discipline over workers in plants and offices, large and small, making sure that they keep working at the pittance that the government thinks they deserve.

What really frightened China's ruling elite last year was the danger of decreased party control over workers. The student demonstrations were embarrassing enough, but hundreds of thousands of workers were joining them on the streets. Even worse, the workers were taking the daring step of forming their own Workers Autonomous Federations in Beijing and other major cities. China's aging leader, Deng Xiaoping, had long made known to his henchmen that he would not tolerate spread of the "Polish disease" -- the founding of a movement like Solidarity -- and so when the workers refused to retreat from their independent stance, he ordered a brutal military crackdown.

It so happened that shortly before Tiananmen Square erupted last year, President Bush had to decide whether to continue a trade privilege first granted to the People's Republic in 1980: designation as a "most favored nation" -- a status that opens the way to low tariffs for a country's exports to the United States. Despite some criticism, Bush recertified China's status as a "most favored nation" for another year. At the end of this May, the president again endorsed the coveted MFN status for China, even as he withheld it from the Soviet Union.

Now it is up to Congress to overturn his decision. Why? Because China does not deserve to be one of our "favored" nations. It maintains a nation-wide network of slave labor camps. Its autocratic leaders have arrested and killed workers who courageously tried to form free trade unions. They forced world-renowned astrophysicist Fang Lizhi and his wife to flee for their lives to a refuge in the U.S. Embassy in Beijing. And they orderd the massacre in Tiananmen Square a year ago. Do we really want to favor that kind of nation?

Those who favor MFN for China offer a number of rationales:

The United States needs to support the Chinese communists as a buffer against the Soviet communists. The truth is that China's leaders side with our geopolitical interests when it suits them, and only then.

We need to support U.S. business, which would lose its large stake in China if Beijing lost MFN status. Well, that's just too bad. What has happened to the old conservative argument that free enterprise and communism are incompatible? Is American capitalism so weak that it relies for its profits on a system propped up slave labor?

We must protect the interests of poor ordinary Chinese who benefit from U.S. trade. Oddly enough, we hear this refrain mostly from American business lobbying groups, as though they, of all people, can speak for ordinary Chinese workers. Few Chinese workers are able to speak for themselves, but one who can -- a woman now in the United States -- told a recent public forum she favors sanctions, even more of them, and specifically cancellation of China's MFN status. Wouldn't that hurt Chinese workers? she was asked on CBS News. The short-term sacrifice, she said, was necessary to make gains for freedom.

We must defend the interests of poor American consumers, who desperately need all those "cheap" Chinese-made shoes and toys and dolls. This rationale is offered at a time when consumers are deprived of ivory because of concern for elephants; when women are pressured not to wear fur coats because of concern for minks; when tuna fishing in the Pacific is restricted because of concern for dolphins. Would it be too much also to expect some concern for the working men, women, and children of China?

And concern, too, for American workers? After all, what happens in the thousands of workplaces of, say, China's Guangdong Province, next to Hong Kong, affects not just the workers there but workers right here in the United States. Why are New York City and some other cities suddenly faced with an outbreak of child labor? One reason is the exodus of young children, under 14, from Guangdong Province classrooms into garment factories that export clothes by container-loads to the United States. Why are women in the garment and textile plants of Pennsylvania and South Carolina working at pay barely above the federal minimum-wage level? One reason is that young women by the tens of thousand are working long hours in the garment and textile plants of Guangdong Province at below-subsistence wages, producing goods flooding the American market.

American business and Chinese communism have formed a partnership that is most favorable to themselves. They are conspiring to deprive both Chinese and American workers of their rights. It is high time to give that odd partnership a severe shock. It is high time to cancel China's most-favored-nation status.

Charles D. Gray is executive director of the AFL-CIO's Asian-American Free Labor Institute.