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Apple and the China Trade

Recent media exposure of labor abuses among Apple’s suppliers reignited public discussions about China and the human costs of globalization. Meanwhile, concerned with jobs in an election year, President Obama has called for China to play fair in international trade and improve its human rights record.

China was instrumental in creating the low- wage, and low-labor standard globalization that cost the United States many jobs. In recent years, the Chinese government, however, made efforts to give “made in China” a new meaning and to dispel the negative image of the country as a hub for abusive 19th Century capitalism in the age of globalization. American multinational corporations opposed these changes.

China is gradually abandoning the earlier labor practices as it moves towards the creation of a domestic market and a middle class society. Given the size of China’s labor force and the country’s prominence in the world economy, any improvement in labor relations will have a substantial effect on wages and standards in the rest of the world. China and the world economy are at a historical threshold.

The Chinese government has been supporting steady improvement in wages and labor standards. In the city of Shenzhen, the home of Foxconn, the main local supplier of Apple, the government-set minimum wage more than tripled from an average of $70 a month in 2005, to $240 in 2012. Wage increases have surpassed the inflation rate. They continued even after the 2008 crisis.

Beijing also made concrete efforts to improve workplace standards. In April 2006, the government released for public discussion the first draft of The Labor Contract Law. The draft law was an important step in protecting workers’ rights, and establishing basic rules of fair play sought by President Obama.

The draft law restricted the use of temporary labor, limited the ability of employers to randomly fire their workers, and gave workers the right to collective bargaining for wages and benefits. It demanded all employers to provide their workers with a contract.

The American Chamber of Commerce in Shanghai (AmCham) and the U.S.-China Business Council lobbied against the draft on behalf of many large U.S.-based corporations they represented. They criticized the draft for reducing labor market flexibility and increasing the cost of production. In a public statement, the U.S.-China Business Council challenged the draft law for reducing employment opportunities for Chinese workers, and negatively impacting China’s competitiveness and appeal as a destination for foreign investment.

In the 1980s and 1990s, American multinationals used the threat of relocating to China as a bargaining chip in their wage and benefits negotiations with their workers in the United States. Years later, they used the threat of India, Vietnam, and others against the Chinese workers. The threat succeeded in part. After months of lobbying and negotiations, a weaker version of the draft became law in April 2007.

China has come a long way from the extreme abusive labor practices of the past. A deeper transformation of labor relations and the application of labor rights common in Western democracies will be a difficult and bumpy road. The journey, however, has already begun. It is imperative that the American multinationals do not weaken this trend. President Obama and the U.S. legislature can play a constructive role.

The United States’ economic policy towards China is largely framed through the prism of international trade. The United States’ trade with China, however, has gone through fundamental structural changes in recent years.  A growing part of the increase in imports, and the subsequent loss of American jobs are now caused by the global investment and production of the large U.S. firms. Escaping progressive labor standards at home, U.S.-based corporations have been setting up complex global supply chains with different degrees of labor rights abuses. Conventional trade policy is inadequate for addressing job losses and the trade arising from globalization.

By allowing imports with sub-standard workplace practices, free trade penalizes the fair players while it rewards the others. Conventional protectionist policy, however, penalizes both the violators and non-violators of labor rights. President Obama can save American jobs and help the creation of a fairer globaliztion by supporting a trade policy that focuses on workplace practices of large U.S. firms and their suppliers in China and elsewhere.

The new policy would be employer-specific, focusing on how imports are produced. Import duties would be levied on those brands that violate the existing national labor laws in different parts of the supply chain, or minimum standards set by a committee of the WTO. The United States should present the new policy for discussion and enactment by the WTO.

This is a win-win policy that helps China move towards more internationally accepted norms, reduce the ability of large corporations to shop around the world for lowest wages and labor standards, and save the American jobs that would have been lost to unacceptable labor practices elsewhere in the world.

BEHZAD YAGHMAIAN is a professor of political economy at Ramapo College of New Jersey, and the author of Embracing the Infidel: Stories of Muslim Migrants on the Journey West and the forthcoming The Accidental Capitalist: A People’s Story of the New China (March 2012). He can be reached at behzad.yaghmaian@gmail.com.

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