Baucus Floor Statement -- ''Voyages of Trade and Discovery''
Senate Floor Statement of U.S. Senator Max Baucus
(WASHINGTON, D.C.) U.S. Senator Max Baucus, ranking member of the Senate FinanceCommittee, delivered the following statement regarding the advancement of free trade and China’s place in the global marketplace. The statement follows:
“Six hundred years ago this month, a great fleet of more than 300 ships lifted anchor inNanjing, China, on the first of seven voyages of trade and discovery. The Chinese fleet countedthe largest wooden ships ever built, some with 9 masts, massive keels of teak, and decks 400 feetlong.
The Ming Emperor gave his nearly-7-foot-tall admiral orders to sail on July 11, 1405,nearly a century before Christopher Columbus and Vasco da Gama left Europe. And all of thoseEuropean explorers’ ships could have fit on a single deck of one of the Chinese treasure ships.The 36-foot rudder of one of the ships stood almost as tall as Columbus’s flagship The Nina waslong.
The Ming fleet carried a crew of nearly 28,000, with a medical officer for every 150 soulson board. And the fleet carried more than a million tons of silk, porcelain, copper coins, andspices to trade for the riches of the world, on to what the Chinese called the Western Ocean —what we call the Indian Ocean.
They reached Sumatra, Ceylon, and India. They went to the Arabian Peninsula andAfrica’s Swahili coast. They made a side trip to Mecca.
At each port, ships with colorful prows delivered platoons of Chinese merchants, ready todo business. In Siam, they acquired sandalwood, peacocks, and cardamom. In Indonesia, theyacquired tin. In Oman, they traded porcelain for frankincense, myrrh, and aloe. The sultan ofAden gave them zebras, lions, and ostriches. In East Africa, they acquired a giraffe.In 1451, one of the fleet’s interpreters would write a memoir of the voyages, exclaiming:“How can there be such diversity in the world!?”
In Sri Lanka, the admiral engraved a granite slab in Chinese, Tamil, and Persian, seekingblessing from Buddha, Siva, and Allah alike.
In the south-Chinese harbor of Changle, the admiral inscribed on a pillar:“[We] have recorded the years and months of the voyages . . . in order to leave [thememory] forever.”
He listed his destinations, “altogether more than 30 countries large and small.”He wrote of his efforts, quote, “to manifest the transforming power of virtue, and to treatdistant people with kindness.”
He wrote: “We have traversed more than 100,000 li” — 40,000 miles — “of immensewater spaces and have beheld in the ocean huge waves like mountains rising sky-high, and wehave set eyes on . . . regions far away hidden in a blue transparency of light vapors . . . .”Today, Chinese officials will proudly recall the voyages of the Ming fleet. They willobserve that Ming China amassed one of the most powerful naval forces ever assembled. Andthey will pointedly note that China used the fleet not for conquest, but for business andexploration, trade and diplomacy.
Three weeks ago, on June 24, 2005, a fleet of Chinese-made cars began rolling onto aship in Guangzhou, China, bound for Europe. The fleet counted cars made at a gleaming newHonda factory on the outskirts of the sprawling city of 12 million souls near Hong Kong.As reporter Keith Bradsher described: “At the new Honda factory . . . white robots pokeand crane their long, vulture-like heads into gray, half-completed car bodies to perform 2,100 ofthe 3,000 welds needed to assemble each car. Workers in white uniforms and gray capscomplete the rest of the welds, working as quickly as workers in American factories — butearning roughly $1.50 an hour in wages and benefits, compared with $55 an hour for GeneralMotors and Ford factories in the United States.”
In America, G.M. and Ford struggle to pay high health care costs for auto workers withan average age of nearly 50. In China, most of Honda’s auto workers are in their 20s. They donot go to the doctor much. And when they do, Chinese doctors charge less than $5 for an officevisit and a few stitches.
China’s manufacturing companies are rapidly building wealth. And they have begun totrade that wealth for the riches of the world, across the Pacific Ocean.At airports throughout the world, airplanes with colorful tail wings deliver platoons ofChinese merchants, ready to do business. In May, the Chinese company Lenovo acquired thepersonal computer division of IBM. In June, a Chinese company bid $2.25 billion for the Iowabasedappliance company Maytag. Also in June, China National Offshore Oil Corporation bid$18.5 billion for Los Angeles-based Unocal, whose “76” marketing symbol is one of the mostrecognized and enduring corporate symbols in America. And all this buying pales next to theacquisition by China’s central bank of $230 billion of American Government debt.China is pursuing trade agreements with India, Australia, New Zealand, and Thailand.China is reaching out to the 10 countries of the Association of Southeast Asian Nations —ASEAN.
The Chinese are visiting the rest of Asia in greater numbers than ever before. They bringwith them money and optimism about the “new China.” The new China has gleamingskyscrapers, modern productive industries, and a rapidly developing infrastructure.China has launched a major charm offensive throughout Asia to promote itself as adesirable place in which to visit, to invest, and to live. Through ventures such as China RadioInternational, worldwide television broadcasts, and Chinese language and cultural centers acrossAsia, China advertises itself as an attractive destination. Increasingly Asians are foregoing tripsto Los Angeles, traveling to Beijing instead. For many young Asians, the gleaming lights ofShanghai illuminate the new Manhattan.
Already, 90 million people in China’s coastal cities have access to the Internet. And theChinese own more cell phones than any other people in the world. There are more cell phones inChina than people in America.
China has the world’s largest population, fastest-growing economy, second-largestforeign currency reserves, and third-largest trade. China creates one-fifth of world trade growth.In 2004, America exported 2½ times more to China than it did in 1999. Montanaexported 11½ times more. But America’s merchandise trade deficit with China more thandoubled in the same time. China accounted for a quarter of America’s $652 billion trade deficitin 2004.
And as Tom Friedman writes in his book The World Is Flat: “[W]hat is really scary isthat China is not attracting so much global investment by simply racing everyone to the bottom. .. . China’s real long-term strategy is to outrace America and the E.U. countries to the top, andthe Chinese are off to a good start.”
China is amassing one of the most powerful economies ever assembled. America mustask: Will the result be as benign as the voyages of the Ming Treasure fleet?Asia accounts for one-third of the world economy. It is the world’s most economicallydynamic region. America needs to pay attention.
This administration has launched 20 free trade agreements. But only one has been inAsia — Thailand.
Instead of embracing ASEAN, this administration has largely ignored it. Thegovernment has ceded the initiative in Southeast Asia to China. That is how ASEAN views therecent decision of Secretary of State Rice to skip an important annual ASEAN gathering laterthis month. U.S. Secretaries of State have traditionally attended that conference.And this administration has failed to use the Asia Pacific Economic Cooperation —APEC — as a platform for trade integration. Rather, this administration has turned theorganization into little more than a venue to discuss security concerns.
Since 2000, this administration has negotiated bilateral and regional trade agreements at afurious pace. But most of the agreements that the government has been negotiating offer littlereal value to America’s commercial interests. Why? Because the government is choosingtrading partners more for foreign policy reasons than for commercial reasons.The U.S. Trade Representative has finite resources. To be effective, to deliver thegreatest benefits to Americans, the government must direct its efforts where they are likely tohave the greatest effect.
In 1962, Congress created the Special Trade Representative — the predecessor of theU.S. Trade Representative — to remove trade policy from the State Department, precisely so thatcommercial interests rather than foreign policy interests would drive American trade policy.We must focus trade policy efforts where they promise the greatest return for ourranchers, businesses, and workers. First and foremost, we need to devote more effort to theongoing Doha Round of WTO negotiations. From all appearances, the negotiations aredragging. The pace of progress will have to improve considerably to meet the goal of anagreement by the end of 2006. And that will require a substantial commitment of U.S.leadership and resources.
And we need to look more to Asia for bilateral agreements, as well. For example, SouthKorea is our 7th largest trading partner, with two-way trade totaling $70 billion. Korea haspromised real reforms in its agricultural markets. It has liberalized investment restrictions andlowered merchandise tariffs. I have met with Korean trade officials on several occasions. Theyare serious about reforms.
Regional trade agreements in Asia, perhaps under the auspices of APEC, also holdpromise. APEC’s 21 member economies account for a third of the world’s population and aboutthree-fifths percent of world production. American exporters would get a major boost from aregional free trade agreement on this scale.
We also need to seek out further sectoral agreements like the WTO’s hugely successfulInformation Technology Agreement, negotiated largely by America, Japan, and Singapore.We should launch an initiative in the advanced medical equipment sector. Asia has arapidly aging population, particularly in Japan, Korea, and China. This demographic shifttranslates into growing demand for advanced medical equipment. America already exports half abillion dollars a year in medical devices to China and Hong Kong. And these exports areexpanding 12 percent a year.
And we need to better enforce our existing trade agreements.In China, piracy — the theft of American copyrights and patents — is at epidemic levels.In the past 2 years, companies from General Motors to Sony to Cisco have complained thatChinese have stolen their intellectual property. More than 90 percent of software sold in Chinais stolen. American innovators are losing billions of dollars a year. Combating piracy wouldhelp the American economy far more than further agreements with countries whose entireeconomies are but a fraction the of our losses to piracy alone.
China also maintains a troubling currency peg. But retaliatory tariffs are not the answer.Tariffs would violate our WTO commitments. Tariffs would inflame already difficult traderelations with China, invite Chinese retaliation in other areas, and make Chinese imports nearly athird more expensive. Tariffs would hurt American consumers who would pay more for many ofthe goods that they buy. And tariffs would hurt U.S. companies who rely on Chinese inputs todevelop their own products.
Having said that, China’s currency peg is a problem. It distorts world markets and hurtsboth America and China itself. China needs to revise its currency policy.While issues with China dominate the headlines, there are other enforcement priorities,including in our own hemisphere. In Brazil for example, the government recently forced anAmerican pharmaceutical company to reduce its price for one of its medicines. It did so bythreatening to break its promise to protect the American company’s patent, and to let a stateownedcompany make generic copies of the medicine.
This is blackmail, pure and simple. And it is illegal. This sort of coercion has no place inour trade relations. It hurts our companies and our workers. And it dampens the incentive tocreate new and innovative pharmaceuticals.
And our problems with Brazil go beyond just pharmaceuticals. Until recently, Brazilbanned the sale of genetically-engineered seeds for use in agriculture. These are the kind ofhigh-tech seeds American companies like Monsanto and Pioneer Hi-Bred develop and sell allover the world — but not in Brazil. How odd then, that roughly 30 percent of Brazil’s soybeansare grown with genetically-engineered seeds. The figure is near 90 percent in Brazil’ssouthernmost state of Rio Grande do Sul.
How can this be? Theft. These seeds were smuggled in from neighboring countrieswhere they are allowed, and planted illegally. They were not purchased. They were stolen.
And just like piracy in China, piracy in Brazil costs American industries dearly. Lastyear, American companies lost $930 million in Brazil because of piracy of audiovisual goods.Some estimate that three-quarters of the audiocassettes sold in Brazil are pirated.Of course we cannot launch a full-fledged WTO dispute to address each and everyforeign trade barrier. And the U.S. Trade Representative often rightly attempts to resolve manyof these issues through negotiation and other means.
But there can be little doubt that trade enforcement has received a lower priority of late.In the 6 years from 1995 through 2000, the United States filed 67 WTO dispute settlement cases.In the 5 years since, we have filed only 12. That’s about an 80 percent decrease.Too often, our tools to address trade barriers are lying unused, on the shelf. That burdensAmericans with economic losses. But what is more, when Americans see that others arecheating, their enthusiasm for trade cools. And we all suffer as a result.
Americans also cool to trade when they see nothing being done to help those who losefrom trade. Lowering tariffs and barriers increases competition and benefits many more than ithurts. But it inevitably hurts some.
For more than 40 years, the government has been helping to retrain workers affected bytrade to give them the skills that they need to find new jobs. These programs were expanded in2002 under the Trade Adjustment Assistance Reform Act — a bipartisan effort and one of myproudest achievements as Chairman of the Finance Committee. The reforms expanded eligibilityto new categories of workers, created a new health coverage tax credit, and helped older workerswith a new wage insurance benefit. Last year, these programs helped nearly 150,000 workers.TAA is an integral part of a successful trade policy. A few weeks ago, I discussed thisvery issue with Federal Reserve Chairman Alan Greenspan during a Finance Committee hearing.Chairman Greenspan stated — as he has before — that our trade policy should [quote] “assistthose who are on the wrong side of the adjustment” caused by trade.
But lately, the government has not supported TAA. This year, the administration’sbudget zeroed out funding for the TAA for Firms Program, which pretty much everyone agreeshas been useful and cost effective. And last month, the Senate Finance Committee passed anamendment offered by my Colleague from Oregon, Senator Wyden, to extend TAA to workersin the service industry. But then the administration stripped the language out of the CAFTAimplementing bill that it submitted to the Congress.
Liberalizing trade requires a grand bargain with workers. Workers agree to be exposed toincreased international competition. But society agrees to erect a strong social safety net to helpworkers adjust. When workers’ old skills become obsolete, society helps them learn new skillsto compete. If we undercut this bargain, we do so to the peril of further trade liberalization andour international competitiveness.
But we must press forward with trade liberalization. For, 600 years later, internationaltrade remains as vital to the world economy today as it was to Ming China.Trade allows Americans to specialize in what we do best. And that allows us to improveour international competitiveness and maximize our standard of living.What Americans do best today is manufacture capital-intensive goods — airplanes,automobiles, and construction equipment.
Americans invent whole new fields, like biotech and nanotechnology, that lead to newproducts to make our lives better. University of Michigan scientists recently usednanotechnology to deliver a powerful drug inside cancerous tumor cells, increasing the drug’scancer-killing activity and reducing its toxic side effects.
Americans pioneer new services to make our lives better, like internet banking. Weexport our services all over the world. Hollywood movies and American television programs aretranslated into countless languages and watched around the world. American universitieseducate students from virtually every country on earth. American insurance companies insureassets in jungles, deserts, and savannas.
And American ranchers and farmers feed and clothe people around the globe.Freer trade helps us find and open new markets for what Americans do best. Newmarkets provide new opportunities for American workers and their companies. New marketsmean greater demand for what Americans produce. And new markets mean more jobs and moreinvestment opportunities to meet the demand.
And as we meet the demand of foreign consumers through trade, American productsbecome global products. American brands become global brands. Coke is Coke, the world over.On today’s voyages, one can find the familiar yellow arches of McDonald’s in Cyprus, Slovenia,and Oman.
The American standard becomes the global standard and the international sign ofexcellence. Excellence means that half of world’s 20 largest companies are Americancompanies. Companies like Citigroup, IBM, and General Electric.
Importing products from our trading partners challenges domestic companies to compete.But competition keeps American companies nimble. American companies are constantlycoming up with new products and better ways to make them.
Just look at the number of U.S. patents filed by Americans versus the rest of the world.Americans filed nearly 90,000 patents in 2003 — that’s 50,000 more than the next mostinnovative country, Japan. In innovation, we are still number one.
And the biggest payoff from international trade goes to the American consumer. Asmore and more companies trade and produce what they are best at producing, prices insupermarkets and department stores plummet. Cheaper products mean that we can afford moreof what we need. And our standard of living improves.
The now-ubiquitous cell phone provides a great example. Ten years ago, it was anunaffordable luxury for most Americans. Using one in public aroused curiosity. But tradeforced prices to drop. And now many Americans see cell phones as a necessity.
Leaders have not always appreciated the benefits of trade. After the stock market crashin 1929, America enacted the Tariff Act of 1930. That Act imposed the now-infamous Smoot-Hawley tariffs that deepened the Great Depression.
During the presidential campaign of 1932, President Hoover warned that repealing theSmoot-Hawley tariffs would devastate the U.S. economy because Americans could not competesuccessfully with workers in poorer countries with lower wages and lower costs of production. Itwas Franklin Roosevelt who argued that worldwide reduction of trade barriers would benefitboth America and its trading partners.
Roosevelt’s victory, along with his signing of the Reciprocal Trade Agreements Act,ushered in the modern era of American trade policy.
During World War II, Secretary of State Cordell Hull argued that economicprotectionism had fed the animosities that led to the War. He advocated freer trade in thepostwar era as a bulwark for peace and prosperity.
This vision led to the General Agreement on Tariffs and Trade, or the GATT, negotiatedduring the Truman Administration. This forerunner to today’s World Trade Organizationbrought down the disastrously high Smoot-Hawley tariffs and freed $10 billion of trade fromduties.
Democrats can be proud of our role in expanding free trade. Democratic administrationscompleted and implemented the last three rounds of GATT negotiations. In 1967, the JohnsonAdministration completed the Kennedy Round. In 1979, the Carter Administration completedthe Tokyo Round. And in 1994, the Clinton Administration completed the Uruguay Round.And the Clinton Administration completed the North American Free Trade Agreement,negotiated the historic bilateral trade agreement with Vietnam, and granted permanent normaltrade relations to China, ultimately paving the way for China’s membership in the WTO.
The success of trade liberalization has been spectacular, touching the lives and wellbeingof all Americans. Freer trade has lowered our tariffs from about 40 percent in 1946 to about 4percent today — and made our trading partners do the same. Freer trade has increased ournational income by nearly $1 trillion a year. Freer trade has increased the average Americanhousehold’s income by nearly $10,000 a year. Freer trade with China alone saves Americanhouseholds $600 each year.
Today, 12 million Americans — 1 of every 10 workers — depend on exports for theirjobs. International trade now accounts for a quarter of our gross domestic product, up from just10 percent in the 1950s.
Trade opens our lives to new opportunities and choices. Trade gives us new foods to eat,new movies to watch, and new products to buy.
Strengthening trade ties also contributes to peaceful relations with our trading partners.And our quality of life improves as the world grows ever smaller, shrinking with the bettercommunications and transportation links that develop with increased commerce.Back in China, Guangzhou airport has a terminal designed by an American company,boarding gates supplied by a Danish company, and an air traffic control tower engineered by acompany from Singapore.
America’s Dell Computers is giving the Chinese competitor Lenovo a run for its moneyin China. Dell now has become China’s third-largest seller of PCs. And Dell now produces 3million PCs in China — as many as Lenovo.
America should welcome China’s greater integration into the world market. It may meanthat we will have to work a little harder, study a little bit harder, and think a little bit quicker, tokeep ahead. But those are talents at which Americans excel.
In middle of the 15th century, China made an abrupt change in foreign policy. Chinaturned inward and abandoned outward-looking trade. Imperial edicts banned overseas travel. Toreduce commerce with foreign nations, the new Chinese dynasty burned a swath of land 30 milesdeep for 700 miles of its southern coast. Any merchant caught engaging in foreign trade wastried as a pirate and executed.
With the Emperor’s death in 1435, the government put a stop to the voyages of theTreasure Fleet. Chinese court officials destroyed the plans for the Treasure Ships, the accountsof their voyages, and almost every map and document of the previous period. Sadly, China’sgolden Ming age came to an end, China’s economy fell backward, and the treasure ships becameshrouded in the mists of history.
We cannot yet know whether the voyages of today’s fleets of Chinese ships will lead toanother golden age for China like that of the Ming Dynasty. But we also cannot expect thatChina will somehow once again abruptly reverse course and turn inward.Try as regimes after the Ming dynasty did, they could not erase the history of the Mingtreasure fleets, whose voyages will leave a memory forever.Let us respond to today’s Chinese fleets with the best spirit of the Ming admiral, and thebest spirit of America.
Let us work to advance freer trade, so that for America and for China, we can, in thewords of the Ming admiral, “manifest the transforming power of virtue.”Let us work to advance freer trade, to make a better world both for ourselves, and for“regions far away hidden in a blue transparency of light vapors.”And let us work to advance freer trade, because both in terms of new innovations andnew trading partners, America’s greatest voyages of discovery still lie ahead of her.”
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