FOR MUCH OF the past year, the United States has seemed to be heading toward a trade confrontation with China. Lobbies ranging from the AFL-CIO to the National Association of Manufacturers have attacked the Chinese, in the labor federation's case for abusive treatment of workers, in the manufacturers' case for a currency peg that keeps the Chinese yuan low against the dollar, boosting Chinese competitiveness. The Bush administration has sometimes wanted to keep step with the anti-Chinese mood: Last September it demanded that the Chinese abandon their currency peg, and this year it brought a complaint about China's tax treatment of semiconductors to the World Trade Organiza- tion. Democrats, for their part, have sounded eager to replay the trade battles that the United States waged against Japan in its heyday. Sen. John Kerry, the Democratic standard bearer, has called for "tougher enforcement" of trade rules, charging that the Bush ad- ministration has done too little to combat Chinese violations.
So far, however, confrontation has been minimal, and the resulting non-story is itself a story. To their credit, the Bush administration and its Chinese counterparts have resolved a string of arguments about subjects ranging from wireless encryption to soybeans, and earlier this month they resolved the semiconductor issue without waiting for the WTO panel to rule; this is more than can be said for many squabbles between the United States and Europe. Despite their frequent contempt for law and due process at home, China's leaders appear for the moment to want to abide by international trade rules. So long as this continues to be the case, excessively tough approaches to China, such as the revival of the "Super 301" trade lawsuits frequently used to bash Japan, would be mistaken.
The logic of a cooperative relationship with China, and the danger of seeing China as a new Japan, is clear from statistics presented by George Gilboy in the latest issue of Foreign Affairs. If China presents an economic threat, then the West is competing largely with itself, Mr. Gilboy argues; last year 55 percent of China's exports, and more than 75 percent of its computer and computer-parts exports, were made by foreign subsidiaries there. Unlike Japan or South Korea, which rose to industrial prominence by shutting out most foreign investment and aggressively promoting domestic firms, China is modernizing in a much more open way. Since launching its economic liberalization in 1978, China has taken in 10 times more foreign investment than Japan did between 1945 and 2000.
Yet if China's economic model is less threatening than Japan's, it will still pose challenges for the United States, and its political model remains odious. Because of its huge appetite for commodities, China may push up world prices for such goods as energy and grain. It may push down prices for manufactures. Disputes like the one over semiconductors, which ended up showing China's welcome flexibility, will coexist with disputes over intellectual property rights, in which Chinese piracy may continue. Moreover, foreign investment in China's export sector won't defuse the AFL-CIO's criticism of the abusive conditions confronting many Chinese workers. The challenge for this and successive administrations is to prod the Chinese toward banking reform, stronger protection of human rights in the workplace and greater respect for intellectual property -- reforms that are in China's own interest as well as the interests of outsiders.