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Thursday, May 1, 1997

Free Trade and Human Rights in China

Trade Restrictions Won't Create Political Change Abroad

James A. Dorn is vice president for academic affairs at the Cato Institute. This essay is a condensed version of his article in the Spring/Summer 1996 Cato Journal.

The best way to promote human rights around the world is to promote free trade. Trade liberalization improves ties among nations, increases their wealth, and advances civil society. Protectionism does the opposite. Governments everywhere need to get out of the business of trade and leave markets alone. Western democratic governments, in particular, need to practice the principles of freedom they preach and think of free trade not as a privilege but as a fundamental human right.

A free-market approach to human rights policy does not mean an attitude of indifference toward human rights abuses. Using slave labor or political prisoners and compelling very young children to compete in international markets are wrong. But blanket restrictions, such as the denial of most-favored-nation (MFN) trading status or the use of sanctions not directly targeting the wrongdoers, should be avoided. The problem is that even limited actions are very difficult to enforce and unlikely to bring about political change in an authoritarian regime.

Protectionist measures are more apt to radicalize than liberalize closed societies. The logical alternative is to use the leverage of trade to open authoritarian regimes to market forces and let the rule of law and democratic values evolve spontaneously as they have in Chile, South Korea, and Taiwan. The expansion of markets creates a culture of commerce and economic liberty that naturally spills over to social and political life. As people become freer in their economic life, they will demand greater autonomy in other areas, including a stronger voice in government.

Free Trade as a Human Right

The proper function of government is to cultivate a framework for freedom by protecting life, liberty, and property, including freedom of contract (which includes free international trade), not to use the power of government to undermine one freedom in an attempt to secure others. The right to trade is an integral part of an individual’s property rights and a civil right that governments should protect as a universal human right.

Market exchange rests on private property, which is a natural right. As moral agents, individuals necessarily claim the right to liberty and property in order to live and to pursue their interests in a responsible manner. Governments should afford the same protection to economic liberties, including free international trade, as to other liberties.

Restrictive trade practices impede not only the flow of goods and services but also the exchange of information and the transmission of values that occur with free markets. When market exchange opportunities are curtailed, government power grows, with adverse effects on human liberty. Likewise, when markets expand, individuals gain autonomy and government power diminishes. People become less dependent on the state and more dependent on one another when markets open and protectionism declines. A case in point is China.

The Chinese Experience

Before China’s open-door policy, initiated in 1978, the Chinese Communist Party (CCP) had a monopoly on economic, social, and political life. China isolated itself from the West, and the Chinese people had little opportunity to expand their horizons. The repressive system of communal farming prevented China’s large rural population from determining its own fate, and state enterprises made the urban population totally dependent on government. The lack of an alternative to the centrally planned economy made China a giant serfdom where individuals had little hope of improving themselves and their families.

After 1978, China’s economic reforms—which liberalized trade, ended collectivized farming, and created new employment opportunities outside the state sector—freed millions of people from the iron grip of the CCP. The return of farming to families under the household responsibility system (baochan daohu) changed the whole dynamic of economic, social, and political life. The state was no longer the master for the 80 percent of China’s population that lived in rural areas. Farmers became risk-takers, created new markets, developed rural industries, and migrated to urban areas. They and their families were no longer slaves to the state: they resisted coercion and initiated what Kate Xiao Zhou calls a spontaneous, unorganized, leaderless, nonideological, apolitical movement that transformed the old communist system and enhanced human rights.[1]

The quiet revolution that has been taking place in China’s economy since 1978 is combining with the information revolution to strengthen the fabric of civil society, especially in China’s southern coastal provinces. Commenting on China’s cultural transformation, Jianying Zha writes in her book China Pop, The economic reforms have created new opportunities, new dreams, and to some extent, a new atmosphere and new mindsets. The old control system has weakened in many areas, especially in the spheres of economy and lifestyle. There is a growing sense of increased space for personal freedom.[2] Anyone who has visited China and seen the vibrancy of the market, the dynamism of the people, and the rapid growth of the nonstate sector will concur with Zha’s cautious optimism.

Commercial life in China is evolving naturally as people flee the countryside for improved living conditions and the chance to strike it rich in the growing nonstate sector.[3] If this current growth continues, by the year 2000 nonstate enterprises will account for more than two-thirds of China’s industrial output and as much as 40 percent of China’s gross domestic product.[4]

The liberalization and decentralization of economic life in China has widened the scope for civil society. Princeton University professor Minxin Pei believes that the gradual development of China’s legal system toward affording greater protection for persons and property, the growing independence and educational levels of members of the National People’s Congress, and the recent experiments with self-government at the grassroots level will help move China toward a more open and democratic society. He points to the upward mobility of ordinary people, occasioned by the deepening of economic reform, and to the positive impact of trade liberalization on political norms. In his view public opinion and knowledge of Western liberal traditions, such as the rule of law, have set implicit limits on the state’s use of power and have promoted the democratization of the legal system. There has been a sharp rise in the number of civil lawsuits against the state, and individuals are winning about one-fifth of their cases, according to Pei.[5]

Of course, as long as the CCP stands in the way of private property and the rule of law, China will continue to experience corruption, and the future of freedom and civil society will remain precarious. But isolating China, by the use of trade sanctions or by denying China MFN trading status, would only make matters worse and slow political change. Trade has a civilizing influence, and that influence is more likely to change China than foreign intervention and protectionism.

The Civilizing Influence of Trade

Commerce brings people together, not only to trade goods but also to exchange information. Trade liberalization helps to depoliticize economic life, widen human experience, and reduce the threat of war. Peace and free enterprise tend to reinforce each other. When countries restrict foreign trade, they reduce wealth, diminish freedom, and increase the likelihood of conflict. They also block the natural formation of civil society, which is fostered by the growth of commerce. Traders find it in their own self-interest to treat their customers with respect. Good manners and good business go hand in hand; commercial society and civil society are inseparable. Trade also fosters the rule of law as people find it useful to accept common rules, respect one another’s rights, and be generally tolerant.

In The Wealth of Nations (1776), Adam Smith described how the development of commercial life in Europe gradually introduced order and good government, and with them, the liberty and security of individuals.[6] Likewise, the English liberal Richard Cobden wrote in his 1835 pamphlet England, Ireland, and America, Commerce is the grand panacea, which, like a beneficent medical discovery, will serve to inoculate with the healthy and saving taste for civilisation all the nations of the world. According to Cobden, not a merchant visits our seats of manufacturing industry, but he returns to his own country the missionary of freedom, peace, and good government.[7]

Harvard economist Robert Barro’s recent empirical work, summarized in Getting It Right, shows that earlier writers were correct in seeing a close relationship between free trade and free people. Barro finds that improvements in the standard of living . . . substantially raise the probability that political institutions will become more democratic over time. He argues:

The advanced Western countries would contribute more to the welfare of poor nations by exporting their economic systems, notably property rights and free markets, rather than their political systems, which typically developed after reasonable standards of living had been attained. If economic freedom can be established in a poor country, then growth would be encouraged, and the country would tend eventually to become more democratic on its own.[8]


Trade policy and human rights policy should not be yoked. Imposing punitive tariffs on China by removing MFN trading status or using other restrictive practices to sanction China for human rights violations will do more harm than good. As Kate Zhou has shown in the case of China, commercial activity is liberating and a major way out of governmental control.[9] We should not lose sight of that lesson in the pursuit of some feel-good policy that has little chance of changing China’s political climate but will devastate its blossoming market sector. Keeping people in China and elsewhere in poverty by restricting their human right to trade is neither ethical nor logical.

What China needs is a new system and a new way of thinking. The full range of human rights will come to China only when property rights are treated as fundamental civil rights and when civil rights are protected by the rule of law. As Harry Wu, a former political prisoner in China, put it, “Until private ownership is allowed on a wide scale, genuine liberalization—representative government, free markets and individual rights—will remain elusive in China.”[10]

1. Kate Xiao Zhou, How the Farmers Changed China (Boulder, Colo.: Westview Press, 1996), p. 4. According to Zhou (p. 10), baochan daohu, markets, rural industry, and migration all reduced official control over people’s lives, particularly rural people’s lives. This great increase in autonomy surpassed anything experienced before in the People’s Republic.

2. Jianying Zha, China Pop (New York: The New Press, 1995), p. 202.

3. The nonstate sector consists of all enterprises not directly controlled by the central government or by provincial governments. Nonstate enterprises include urban and rural collectives (of which township and village enterprises are particularly important), individually owned enterprises, foreign-owned enterprises, and joint ventures. Unlike state-owned enterprises, collectives face a hard budget constraint and are primarily market driven. See Michael W. Bell, Hoe E. Khor, and Kalpana Kochhar, China at the Threshold of a Market Economy, Occasional Paper 107 (Washington, D.C.: International Monetary Fund, 1993), p. 13.

4. Ibid.

5. Minxin Pei, Economic Reform and Civic Freedom in China, Economic Reform Today, No. 4 (1994), p. 12.

6. Adam Smith, The Wealth of Nations, edited by Edwin Cannan (New York: The Modern Library, 1937), p. 385.

7. Richard Cobden, Commerce Is the Grand Panacea, in David Boaz (ed.), The Libertarian Reader (New York: The Free Press, 1997), pp. 320-21.

8. Robert J. Barro, Getting It Right: Markets and Choices in a Free Society (Cambridge, Mass.: The MIT Press, 1996), p. 11.

9. Zhou, p. 100.

10. Harry Wu, A Chinese Word to Remember: ‘Laogai’, Washington Post, May 26, 1996, p. C7.

Restrictive trade practices impede not only the flow of goods and services but also the exchange of information and the transmission of values that occur with free markets. When market exchange opportunities are curtailed, government power grows, with adverse effects on human liberty.

The full range of human rights will come to China only when property rights are treated as fundamental civil rights and when civil rights are protected by the rule of law.

  • James A. Dorn is vice president for monetary studies, editor of the Cato Journal, senior fellow, and director of Cato’s annual monetary conference.