Political Risk Brief
Fall 2020

The Vote that Changed the World

Introduction and Summary

Twenty years ago this September 19, the U.S. Senate rendered a decision that today helps define modern American politics.  With a bipartisan vote of 83-15, the Senate followed the action taken on May 24, 2000 by the U.S. House of Representatives and approved Permanent Normal Trade Relations (PNTR) with the People’s Republic of China.1  President Bill Clinton, an early supporter of the measure, signed the legislation into law on October 10, declaring, “China will open its markets to American products from wheat to cars to consulting services, and our companies will be far more able to sell goods without moving factories or investments there.”2  Then-Representative Bill Archer (R-TX-7), the lead sponsor of the bill, remarked, “The American people support this agreement because they know it’s good for jobs in America and good for human rights and the development of democracy in China.”3

PNTR entrenched and scaled the world’s most important bilateral economic relationship.  This arrangement has delivered the core objective sought by each nation’s elite: low-wage jobs for China and low-cost goods for the United States.PNTR’s American supporters were less successful, however, in predicting the initiative’s shortcomings and unintended consequences.  As summarized in 2000 by Economic Policy Institute founder Jeff Faux, the “economic and political costs greatly outweigh [the] benefits … the United States will give up the most important non-military leverage it has in its complex relationship with the authoritarian and unpredictable Chinese regime.”5

Despite the considerable and broadly-shared benefits to American consumers, the concentrated and painful costs imposed by PNTR on specific sectors and geographies have dramatically altered the nation’s political landscape.  The contrast between the almost exclusively positive outcomes promised by PNTR’s champions and the far more complex reality that followed helped shatter the post-World War II policy consensus and fuel the unfolding era of populist-driven political volatility.  As then-candidate Donald J. Trump charged in 2016, “China’s entrance into the World Trade Organization [which followed PNTR] has enabled the greatest job theft in the history of our country.”6

The Senate’s action on the afternoon of September 19, 2000 made PNTR with China inevitable, propelling the geopolitics of the 21st century and unleashing the wave of populism that increasingly animates the American electorate.  It can be described as the vote that changed the world.

“A Hundred-to-Nothing Deal for America”

At the time of the debate in Congress, a wide political consensus in Washington, D.C. held that PNTR carried no significant downside for the United States and would produce meaningful, positive change in China.  Then-President Bill Clinton explained, “This is a hundred-to-nothing deal for America when it comes to the economic consequences.”7  Then-Secretary of State Madeleine Albright expounded on President Clinton’s view: “Economically, America gives nothing in this deal – or to quote the President, ‘nada, zip, zilch’… All we agree to do is maintain the same open markets and policies toward the Chinese products that have already expanded choices and lowered prices for U.S. consumers.”8  Gene Sperling, Director of the National Economic Council under President Clinton (and later under President Barack Obama), highlighted the gains America would receive through PNTR: “When it comes to market opening, the agreement we negotiated with China is a one-way deal.”9  One year later, Republican President George W. Bush extended PNTR, declaring, “We trade with China because trade is good policy for our economy, because trade is good policy for democracy, and because trade is good policy for our national security.”10

Notwithstanding such assurances, four central purported benefits did not come to fruition:

MARKET ACCESS: China’s market was the chief allure for American companies.  A Clinton Administration policy framework explained PNTR would “provide American farmers, businesses, and industries with market access to the world’s most populous nation.”11  Instead, many companies today face “implicit and explicit barriers” to accessing China’s market – such as equity caps, licensing restrictions, and joint venture requirements – while some companies have been denied access entirely.12  Perhaps most famously, “Google, which withdrew from the Chinese market in 2010, subsequently lost $32.5 billion in search revenue from 2013 to 2019.”13

HUMAN RIGHTS: Then-Senator William Roth (R-DE) argued that in passing PNTR, “Congress will actually take its most important step by far in fostering democracy and improving human rights in China.”14  Yet such improvements have failed to materialize.  As described in the 2019 U.S. Department of State Office of International Religious Freedom report, “The Secretary [of State] said the human rights crisis in Xinjiang ‘is truly the stain of the century.’”15  State’s Bureau of Democracy, Human Rights, and Labor in its most recent annual report listed 19 “significant human rights issues” in China, including “torture by the government … restrictions on freedom of movement … and trafficking in persons.”16

TRADE DEFICITS: Then-National Security Council senior staff member Kenneth Lieberthal projected in 2000 that the U.S. trade deficit with China would shrink with the agreement in place.17  Echoing this sentiment, then-Senator John Kerry (D-MA) explained, “[T]he deficit is in large part due to the fact that China has closed its doors to U.S. products.  I believe that only by granting PNTR to China will U.S. businesses be able to open those doors and export goods and services to China.”18  The U.S. trade deficit with China grew almost threefold from 2000 to 2019 (inflation adjusted).19

ECONOMIC LIBERALIZATION: Following the signing of PNTR, the Clinton Administration claimed in a press release that the agreement would “begin to strengthen the rule of law in China and increase the likelihood that it will play by global rules as well.”20  China ranks today, however, 88th in the world according to the World Justice Project’s Rule of Law index, falling more than 15 ranks in the five years it has been included in the index.21

PNTR, Globalization, and U.S. Manufacturing Jobs

Nobel Prize-winning economist Angus Deaton explained in 2016 that India, China, and other developing economies have disproportionately reaped the benefits of globalization, but middle-aged Americans “are the people in the U.S. who are bearing the brunt of [globalization] – these are the people who used to have good factory jobs with on-the-job training.”22  Between 2000 and 2020, five million U.S. manufacturing jobs were lost.23  Importantly, manufacturing productivity (per unit of labor) rose markedly, and the United States added approximately 20 million new jobs across the economy during this period.24  Nonetheless, the concentrated job loss that resulted from shifting manufacturing to China unraveled entire economic ecosystems.  Sherry Linkon and John Russo, who founded The Center for Working-Class Studies at Youngstown State University, used the “deindustrialization” of Youngstown, Ohio to illustrate this phenomenon:

Businesses across the community suffer – not just suppliers or service providers who directly supported a closed plant, but also restaurants and bars and retailers of all kinds.  Stores close, windows get broken, storefronts get boarded up, and downtowns empty out.  Cities lose the tax dollars to pay for street repairs, police patrols, fire departments, and more; crime rises, the built environment deteriorates, and populations decline.25

Furthermore, lateral or upward job mobility eluded most displaced manufacturing workers.  An International Monetary Fund working paper revealed, “Among those who worked in manufacturing for more than 10 years before losing their job, around 80 percent experienced a wage decline.  The median wage decline was around 35 percent, and was around 45 percent for those with more than 10 years of [experience] working in manufacturing.”26

From PNTR to Populism

PNTR serves as the origin story for today’s most prominent populists, who span the ideological spectrum and increasingly find common cause.  Such collaboration has expanded beyond China policy to include other reforms, such as redefining antitrust and limiting corporate financial activity, designed to redress the consequences of PNTR and other neoliberal pro-business policies.  Capturing the broad disenchantment with the corporate policy agenda that included PNTR as a key element, Senator Sherrod Brown (D-OH) testified in 2010:

Free trade advocates – in Washington, on Wall Street, and on nearly every editorial board – lauded the economic opportunities yet to come for U.S. workers and businesses.  They argued that granting PNTR to China was the best way to promote reform and stability in China and the region.  America’s corporate leaders helped convince Congress to give financial incentives to a nation in return for the false promise that a repressive regime would no longer limit individual freedom or crack down on independent labor unions.

But today – just 10 years later – those proponents have been proven wrong.  Since receiving PNTR status and the benefits of [World Trade Organization] WTO membership, China has taken money from American consumers and investors without fully opening its markets to American businesses and workers.  The results are record trade deficits and millions of jobs lost in Ohio and across the U.S. And as for the impact on Chinese workers – they continue to face low wages and substandard labor conditions.

And it’s my guess that even the most ardent proponents of China PNTR are feeling a bit of “buyer’s remorse,” finding themselves unable to do business in China because of China’s aggressive protection of industries.27

The September 2000 Senate vote on PNTR foreshadowed today’s crossover economic populism.  Among the 15 “Nay” votes were two most unlikely allies: staunch conservative Senator Jesse Helms (R-NC) and model progressive Senator Paul Wellstone (D-MN).28  Helms was first elected to the Senate in 1973 and served until 2003, and was Chairman of the Senate Foreign Relations Committee from 1995 to 2001; he passed away in 2008.29  Helms earned the moniker “Senator No” for his unflinching conservatism, “a label he relished.”30  In describing his worldview, Helms remarked, “Those of us who as a matter of conscience have been stalwart anti-communists through the 1960s and 70s, when détente was the order of the day, know a little about what it is like to swim against the current of the times.”31  As a consequence, “Hating Jesse Helms remain[ed] a parlor sport in Georgetown, Cambridge, and Manhattan,” observed columnist Walter Russell Mead in 2001.32

Senator Wellstone famously pronounced, “I represent the democratic wing of the Democratic Party,” and his New York Times obituary declared him an “icon of liberalism.”33  His supporters and closest friends viewed his mid-campaign death in 2002 as a call to uphold his progressive legacy, with Wellstone campaign treasurer Rick Kahn controversially declaring at the Senator’s memorial service, “We are begging you all to help us win the Senate election for Paul Wellstone.  We need to win this election for Paul Wellstone.”34  Some activists even displayed bumper stickers asking, “What Would Wellstone Do?”35  Then-Congressional Progressive Caucus Co-Chair Dennis Kucinich (D-OH-10) explained, “Paul Wellstone stood for so many progressive ideas that are congenial to who I am.”36

Before forging a friendship with Helms, Senator Wellstone once remarked, Jesse Helms “represents everything to me that is ugly and wrong and awful about politics.”37  Despite appearing to share nothing biographically or ideologically, Helms and Wellstone both railed against the grand promises made by supporters of PNTR and worked together to amend the measure.  Helms derided the claim that “if you would just let [China] have permanent most favored nation trade status, then all is going to be hunky-dory.”38

Even as libertarian philosophy on economics dominated the rhetoric of the Republican Party, Helms argued against PNTR, saying, “We Americans stand for something – something other than profits … the Chinese government continues to repress, to jail, to murder, to torture its own citizens.”39  In defending his human-rights focused amendment that Wellstone co-sponsored, Helms remarked, “It will be a tragic mistake to pass this legislation now precisely at the time the Chinese government has succeeded in almost emasculating all opposition to its tyrannical rule.”40

Wellstone foresaw the decrease in U.S. manufacturing jobs that followed PNTR and argued that those “skeptical of trade deals … realize that China’s immense pool of exploited labor and lax regulation can only accelerate this race to the bottom, especially if we end Congress’s annual review of China’s trading privileges.”41  Wellstone asked pointedly, “What kind of future do we want, anyway?  A future in which subsistence wages and abuse of worker rights drag down standards across the globe, or a future in which we civilize the global economy so it can work for working families at home and abroad?”42

New Fusionism

The improbable alliance two decades ago between Senators Helms and Wellstone on PNTR marked an important moment in the rise of American economic nationalism.  This new fusionism now consists, in the words of Director of Research at the American Economic Liberties Project Matt Stoller, of “populists on the Right and Left, whether Elizabeth Warren, Bernie Sanders, or Josh Hawley, challenging the old Reagan and Clinton political model of deference to monopoly and financial power.  The people are demanding that their government exercise power again, and they are not necessarily concerned whether that government is … run by Donald Trump or a social democratic one run by a Democrat.”43

President Trump and Senator Bernie Sanders (I-VT) best demonstrate the Right-Left synthesis on trade, labor, and manufacturing.  President Trump in 2019 explained, “Our vision is pro-worker, pro-jobs, pro-family, pro-growth, pro-energy, and 100 percent pro-American;” in 2020, he maintained, “The global pandemic has proven once and for all that to be a strong nation, America must be a manufacturing nation.  We’re bringing it back.  Six hundred thousand jobs.”44  Senator Sanders reminded in 2019, “I am proud to be the only candidate running for president who not only voted against NAFTA and PNTR with China, but also stood on the picket lines with union workers opposing these unfair trade deals.”45

Outlook

Along with the Iraq War and the Great Recession, the damage to working-class America associated with PNTR shattered the credibility of the elite policy consensus.  These effects appear both severe and long term.  Corporate leaders should plan for an extended period of policy making that rebalances the relative importance of owners and labor, financial services and manufacturing, and international capital flows and the wellbeing of domestic communities.

1  “Roll Call 228 | Bill Number: H.R. 4444,” Clerk of the U.S. House of Representatives, May 24, 2020, https://clerk.house.gov/Votes/2000228; and “Roll Call Vote 106th Congress – 2nd Session,” U.S. Senate, September 19, 2000, https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?con- gress=106&session=2&vote=00251.

2  “Remarks on Signing PNTR with China,” Clinton White House, October 10, 2000, https://clintonwhitehouse4.archives.gov/textonly/library/hot_releases/Octo- ber_10_2000_6.html.

3  Ibid; and “All Information (Except Text) for H.R. 4444 – To authorize extension of nondiscriminatory treatment (normal trade relations treatment) to the People’s Republic of China, and to establish a framework for relations between the United States and the People’s Republic of China,” U.S. Congress, https:// www.congress.gov/bill/106th-congress/house-bill/4444/all-info#cosponsors-content.

4  The price of durables goods in the United States according to the Bureau of Labor Statistics Consumer Price Index has dropped 17 percent, while in China, employment in industry (consisting of mining and quarrying, manufacturing, construction, and public utilities) has risen 6 percentage points as a share of total employment, despite a decline in the labor force participation rate: “Durables in U.S. city average, all urban consumers, seasonally adjusted,” U.S. Bureau of Labor Statistics, 2020, https://data.bls.gov/pdq/SurveyOutputServlet; and “Employment in industry (% of total employment) (modeled ILO estimate) – China,” The World Bank, June 21, 2020, https://data.worldbank.org/indicator/SL.IND.EMPL.ZS?locations=CN.

5  Jeff Faux, “PNTR with China: Economic and political costs greatly outweigh benefits,” Economic Policy Institute, April 1, 2000, https://www.epi.org/publication/briefingpapers_pntr_china.

6  “Read Donald Trump’s Speech on Trade,” Time, June 28, 2016, https://time.com/4386335/donald-trump-trade-speech-transcript.

7  Robert Lighthizer, “Testimony Before the U.S.-China Economic and Security Review Commission: Evaluating China’s Role in the World Trade Organization Over the Past Decade,” U.S.-China Economic and Security Review Commission, June 9, 2010, https://www.uscc.gov/sites/default/files/6.9.10Lighthizer.pdf.

8  Madeleine Albright, “Permanent Normal Trade Relations with China,” U.S. Department of State, April 6, 2000, https://1997-2001.state.gov/state-ments/2000/000406.html.

9  Gene Sperling, “Permanent Normal Trade Relations and the Potential for a More Open China,” Clinton White House, May 12, 2000, https://clintonwhitehouse4.archives.gov/textonly/WH/EOP/nec/html/PunkeChinaSpeech1.html.

10  Press release, “Remarks by the President to Los Angeles World Affairs Council,” Bush White House, May 31, 2001, https://georgewbush-whitehouse.archives.gov/news/releases/2001/05/20010531-8.html.

11  “A National Security Strategy for a Global Age,” Clinton White House, December 2000, https://history.defense.gov/Portals/70/Documents/nss/nss2000.pdf.

12  “Market Access Challenges in China,” The American Chamber of Commerce in Shanghai, October 2017, https://www.amcham-shanghai.org/sites/default/files/2017-10/Market%20Access%20Challenges%20in%20China%20Final.pdf.

13  Nigel Cory, “Testimony to the U.S. Senate Subcommittee on Trade Regarding Censorship as a Non-Tariff Barrier to Trade,” Information Technology and Innovation Foundation, June 30, 2020, https://itif.org/publications/2020/06/30/testimony-us-senate-subcommittee-trade-regarding-censorship-non-tariff.

14  William Roth, “To Authorize Extension of Non discriminatory Treatment to the People’s Republic of China,” Congressional Record 146, No.106, September 12, 2000, https://www.congress.gov/crec/2000/09/12/CREC-2000-09-12-senate.pdf.

15  “2019 Report on International Religious Freedom,” U.S. Department of State Office of International Religious Freedom, June 10, 2020, https://www.state.gov/wp-content/uploads/2020/06/CHINA-INCLUDES-TIBET-XINJIANG-HONG-KONG-AND-MACAU-2019-INTERNATIONAL-RELIGIOUS-FREEDOM-REPORT.pdf.

16  “Country Reportson Human Rights Practices,” U.S. Department of State Bureau of Democracy, Human Rights, and Labor, March 11, 2020, https://www.state.gov/wp-content/uploads/2020/03/CHINA-INCLUSIVE-2019-HUMAN-RIGHTS-REPORT.pdf.

17  Patrick A. Mulloy, “Hearing on ‘Evaluating China’s Past and Future Role in the World Trade Organization’,” U.S.-China Economic and Security Review Commission, June 9, 2010, https://www.uscc.gov/sites/default/files/6.9.10Mulloy.pdf.

18  John Kerry, “To Authorize Extension of Non discriminatory Treatment to the People’s Republic of China,” Congressional Record 146, No. 106, September 12, 2000, https://www.govinfo.gov/content/pkg/CRECB-2000-pt13/html/CRECB-2000-pt13-Pg183317.htm.

19  Table 3, “U.S. Trade in Goods and Services by Selected Countries and Areas, 1999-Present,”U.S. Bureau of Economic Analysis, July 2, 2020, https://www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services.

20  Press release, “Permanent normal trade relations for China: An historic moment for U.S.-China relations,” Clinton White House, October 10, 2000, https://clintonwhitehouse4.archives.gov/textonly/WH/new/html/Tue_Oct_10_163702_2000.html.

21  “China,”World Justice Project, 2020, https://worldjusticeproject.org/rule-of-law-index/country/China.

22  “Angus Deaton on Foreign Aid and Inequality,” Council on Foreign Relations, February 18, 2016, https://www.cfr.org/event/angus-deaton-foreign-aid-and-in-equality.

23 Total manufacturing, “Graphics for Economic News Releases,” U.S. Bureau of Labor Statistics, https://www.bls.gov/charts/employment-situation/employment-levels-by-industry.htm.

24 “International Comparisons of Manufacturing Productivity and Unit Labor Cost Summary Tables and Charts,” The Conference Board, January 2020, https://www.conference-board.org/retrievefile.cfm?filename=ILCProductivityULCSummary1.pdf; Ryan Bourne, “Do Oren Cass’s Justifications for Industrial Policy Stack Up?,” Cato Institute, August 15, 2019, https://www.cato.org/publications/commentary/do-oren-cass-justifications-industrial-policy-stack-up; and Chart 1, Civilian Labor Force, “Charting the labor market: Data from the Current Population Survey,” U.S. Bureau of Labor Statistics, August 7, 2020, https:// www.bls.gov/web/empsit/cps_charts.pdf.

25  Sherry Linkon and John Russo, “With GM Job Cuts, Youngstown Faces a New ‘Black Monday’,” Bloomberg, November 27, 2018, https://www.bloomberg. com/news/articles/2018-11-27/gm-s-job-cuts-reopen-old-wounds-in-youngstown-ohio; and “Interview with Sherry Linkon and John Russo,” The Minnesota Review, March 27, 2012, https://minnesotareview.wordpress.com/2012/03/27/interview-with-sherry-linkon-and-john-russo.

26  Natalija Novta and Evgenia Pugacheva, “Manufacturing Jobs and Inequality: Why is the U.S. Experience Different?,” International Monetary Fund, September 13, 2019, https://www.imf.org/en/Publications/WP/Issues/2019/09/13/Manufacturing-Jobs-and-Inequality-Why-is-the-U-S- 47001.

27  Press release, “Sen. Brown testifies before U.S.-China Economic and Security Review Commission on Trade,” Senator Sherrod Brown, June 9, 2010, https://www.brown.senate.gov/newsroom/press/release/sen-brown-testifies-before-us-china-economic-and-security-review-commission-on-trade.

28  “Roll Call Vote 106th Congress – 2nd Session,” ibid.

29  “Jesse A. Helms Biography,” The Jesse Helms Center Foundation, https://jessehelmscenter.org/senator-helms-biography; and Steven A. Holmes, “Jesse Helms Dies at 86; Conservative Force in the Senate,” The New York Times, July 5, 2008, https://www.nytimes.com/2008/07/05/us/politics/00helms.html.

30  Holmes, ibid.

31  Jesse Helms, “We Become a Part of What We Condone,” Remarks given at the 102nd Commencement Ceremony of Grove City College, May 15, 1982, The Jesse Helms Center Archives, https://cdm17100.contentdm.oclc.org/digital/collection/p17100coll23/id/233/rec/30.

32  Walter Russell Mead, “The Nation; Why the World is Better For Jesse Helms,” The New York Times, April 22, 2001, https://www.nytimes.com/2001/04/22/weekinreview/the-nation-why-the-world-is-better-for-jesse-helms.html.

33  John Nichols, “Wellstone in 2004,” The Nation, October 21, 2003, https://www.thenation.com/article/archive/wellstone-2004; and David E. Rosenbaum, “A Death in the Senate: The Senator; Paul Wellstone, 58, Icon of Liberalism in Senate,” The New York Times, October 26, 2002, https://www.nytimes.com/2002/10/26/us/a-death-in-the-senate-the-senator-paul-wellstone-58-icon-of-liberalism-in-senate.html.

34  Mark Zdechlik, “Rick Kahn says he has no regrets about Wellstone eulogy,” Minnesota Public Radio, June 8, 2003, http://news.minnesota.publicradio.org/features/2003/06/04_zdechlikm_kahn.

35  Bill Lofy, “Paul Wellstone, The Life of a Passionate Progressive: Last Days and Legacy,” The University of Michigan Press, 2005, https://www.press.umich.edu/pdf/0472031198-ch7.pdf.

36  Ibid; and Nichols, ibid.

37  Rosenbaum, ibid.

38  Jesse Helms, “Giving the People’s Republic of China Permanent MFN: Implications for U.S. Policy,” Senate Foreign Relations Committee, April 11, 2000, https://www.govinfo.gov/content/pkg/CHRG-106shrg66499/pdf/CHRG-106shrg66499.pdf.

39  Jesse Helms, “To Authorize Extension of Nondiscriminatory Treatment to the People’s Republic of China,” Congressional Record 146, No. 106, September 12, 2000, September 12, 2000, https://www.congress.gov/crec/2000/09/12/CREC-2000-09-12-senate.pdf.

40  Ibid.

41  Curtis Ellis, “When It Comes to China, Sleepy Joe Biden is Still Snoozing,” RealClearPolitics, May 4, 2019, https://www.realclearpolitics.com/articles/2019/05/04/when_it_comes_to_china_sleepy_joe_biden_is_still_snoozing _140241.html; and Paul Wellstone, “Keep Assessing Trade Status,” April 5, 2000, Los Angeles Times, https://www.latimes.com/archives/la-xpm-2000-apr-05-me-16249-story.html.

42  and Senator Paul Wellstone, Archived Website, https://www.wellstone.org/sites/default/files/attachments/wellstone-senate-website.pdf.

43  Matt Stoller, “The War within Corporate America,” American Affairs, Vol. IV, Number 1, Spring 2020, https://americanaffairsjournal.org/2020/02/the-war-with-in-corporate-america.

44  “Remarks by President Trump on American Energy and Manufacturing, Monaca, PA,” The White House, August 13, 2019, https://www.whitehouse.gov/briefings-statements/remarks-president-trump-american-energy-manufacturing-monaco-pa; and “Remarks by President Trump at Ford Rawsonville Components Plant,” The White House, May 21, 2020, https://www.whitehouse.gov/briefings-statements/remarks-president-trump-ford-rawsonville-components-plant.

45  Senator Bernie Sanders, Twitter, April 30, 2019, https://twitter.com/berniesanders/status/1123360855649865729.