The recent change in political control has many wondering about the future of Chinese and American business relations. Future speaker of the House, Nancy Pelosi has been a proponent of regulations of human rights and intellectual property in China for many years. Her strong stance against the country’s human-rights abuses and religious persecution has been widely publicized. In May 2005, Pelosi criticized the China policy of the United States as, “a total failure”(King, 2006). Will her stance on these issues lead to legislation or even sanctions against the growing Chinese economy?

Pelosi has teamed up with Charles Rangle, future chairman of the House Ways and Means committee to battle these issues. According to Rangle, “future trade restrictions could hinge on findings of unfair labor practices in China” (King, 2006). If Chinese firms were required to meet the same environmental and labor standards of the U.S., would they still hold a strong competitive advantage over other countries? Increasing these standards could cause an increase in operating costs and potentially eliminate jobs in China.

How will this legislation affect the relationship between the two nations and the neighboring countries?

China’s role in the World Trade Organization could be a factor in Congress’ decision. China has become a main importer and manufacturer of parts from Korea, Japan, and Taiwan. Legislation or sanctions against China would have a dramatic economic effect on these neighboring countries as well. New operating standards may cause firms to shut down or reduce the amount of imported goods. A recession in these developing economies could result in price hikes or supply shortages for many U.S. businesses as well. China’s integral role in the worlds’ manufacturing process has made it near impossible to regulate their standards without these negative externalities.

China’s large investment in U.S. treasury bills also could have a large impact on legislation decisions. This $300+ billion investment gives China an edge when dealing with financial policies. Some politicians forecast that implementing tougher regulations might cause China to search elsewhere for business. The new exporting rule dealing with dual-use goods has already hindered U.S. competitiveness in the Chinese market. Adding tariffs or other obligations further increases the cost and complexity of these trade relations.

Some have proposed that limiting trade with China would help the U.S. economy by creating jobs and stimulating national business. However, many of these businesses rely on these low cost imports and demand for exports, as well as outsourcing jobs and manufacturing tasks that would otherwise create insufficient returns. Since 2002, U.S. exports to China have increased 90%, further emphasizing U.S. dependence on China (Bader, 2006). Wal-Mart, the larger retailer in the U.S. imports heavily from China. Limiting this or increasing the costs to import would dramatically affect U.S. consumers. Congress must decide whether battling China on human rights issues and corporate responsibilities is worth the potential consequences to the worlds’ economy.

Submitted by Ryan Maaskamp