Stifling American Businesses' Global Competitiveness

Last week the World Bank released its annual Doing Business report, which ranks 183 national economies on their ease of doing business based on an analysis of ten economic factors: Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, and Resolving Insolvency. As the Bank explains, "a high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm." In short, the higher a country is on the list, the better its business environment.

The topline number for the United States isn't bad: we rank 4th on the list behind Singapore, Hong Kong and New Zealand.  However, a closer look at the US rankings reveals some serious concerns:

As you can see, the United States ranks an embarrassing 72nd globally in "paying taxes" - defined by the Bank as "the taxes and mandatory contributions that a medium-size company must pay in a given year as well as... the administrative burden of paying taxes and contributions").  Basically, US companies pay higher corporate taxes - and have a more difficult time paying them - than 71 other countries.  Such a tax burden has a crippling effect on American companies global competitiveness, and the World Bank study is further proof of just how desperately the current US tax system needs a fundamental overhaul.  The Obama administration has repeatedly promised to reform the US corporate tax system but has yet to provide even a proposal (shocking, I know).  Fortunately, there appear to be several GOP Presidential hopefuls who, unlike the current White House resident, are serious about lowering the ridiculous tax burden that US companies now face.

The United States also ranks poorly in other key economic areas, such as starting a business (13th) and trading across borders (20th) - both vitally important for business formation and global competition.  Contrary to what you might expect, the trade category doesn't analyze protectionist tariffs but instead measures the "time and cost (excluding tariffs) associated with exporting and importing a standardized cargo of goods by ocean transport."  As I've frequently discussed here, such "trade facilitation" (e.g., customs rules, export controls, etc.) issues might be boring, but they're just as important as tariffs (and sometimes even moreso).

Finally, it's important to note where some of the big developing countries rank on this list.  Brazil ranks 126th overall; India ranks a frightening 132nd; and the global powerhouse China ranks only 91st.  In short, it's far easier to do business in the United States than it is in China, and this massive divide in the costs of doing business helps explain why global companies don't all instantly move to the countries with the cheapest labor supplies (and why a lot of them are coming back to the United States after dabbling abroad).  Keep that in mind the next time you hear someone ignorantly rambling about the "race to the bottom" or some politician peddling protectionism as solution to the "inevitable decline" of America's global competitiveness.  In fact, there are a lot of obvious ways that the government could create a better business environment for American companies, and decline is anything but inevitable.

Do Free Market Policies Lead to a "Race to the Bottom"? (Hint: No)

The recent entry of Texas Governor Rick Perry into the Republican presidential race has produced a stampede of bad op-eds and blog posts from Democrats and other liberals seeking to discredit him and/or Texas' amazing successes.  There are a lot of bad hit-pieces out there at this point - and a lot of great rebuttals (see, e.g., here, here, here, here and especially here) - but for my money the worst so far is today's Politico op-ed by Delaware Governor Jack Markell, who warns that Governor Perry's radical, free market ideas would lead to a "race to the bottom" in the United States:

Perry argues that if the nation adopts his approach to business development — based on less regulation, less taxation and less litigation — the economy “will absolutely take off like a rocket.”

Perry’s priorities are not unimportant. But there are lots of countries with no regulation, little taxation and no real threat of litigation — usually also where wages are low and much of the wealth resides with a tiny slice of the elite.

That’s a lousy model for middle-class Americans....

The model favored by Perry is fueled by low-wage jobs, which creates a race to the bottom. The middle-class model involves competing with other countries in a race to the top — to attract research and development operations, high-end manufacturing, design shops and the like.

Now, leaving aside the fact that it's a total myth that the jobs created in Texas are all low-wage "McJobs," or that Perry adopted some sort of scorched earth campaign against government spending - on education, infrastructure or anything else - during his tenure as Governor, I'd like to focus tonight on Governor Markell's main message: that fiscally conservative, free market, "tea party" policies have lead to a "race to the bottom" around the world and would inevitably do the same here in the United States.  Is that really a credible premise?  Are the free market countries championed by fiscal conservatives all banana republics with "low wages" and tremendous income inequality?

In short, no.  Not at all.

Indeed, had the Governor even done the most basic of research, he would have seen that the most "free market" ("free-marketest"?) countries in the world, praised by conservatives and libertarians alike, are also some of the wealthiest, most modern and, in many cases, most "progressive."  For example, the Heritage Foundation's Index of Economic Freedom, which examines countries against a series of fiscally-conservative benchmarks (e.g., low taxes, limited regulations, free trade, small government), lists such backwards, downtrodden places as Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Ireland, Denmark in its top ten "most free" countries.  Indeed, the only country that could possible meet Governor Markell's misleading description is Bahrain.

Meanwhile, the libertarian Frazer Institute's Economic Freedom of the World Report, using similar measures of economic freedom (including limited government), lists most of the same countries that Heritage's Index identified: Hong Kong, Singapore, New Zealand, Switzerland, Chile, Canada, Australia, Mauritius, and the United Kingdom.  What horrible, dangerous countries!

Oh, wait.

On the other hand, the countries that rank near the bottom (or, on Gov. Markell's apparent scale, the top!) of these lists are such liberal paradises as Cuba, Iran, North Korea, Venezuela, Myanmar, Zimbabwe and Libya.

Sign me up!

In all seriousness, this simple example makes it abundantly clear that the Governor has no idea what he's talking about when he says that, if President Rick Perry turned the United States into some sort of "tea party paradise," it would inevitably turn into a third-world disaster zone.  The world's real free market paradigms, according to the very fiscal conservatives that Governor Markell openly derides, are some of the richest, healthiest and most developed countries in the world.  Considering that a simple Google search makes this fact abundantly clear, the Governor's either really slow or really disingenuous.

I'm guessing the latter, but, well, you never know.

But, hey, maybe the Governor has some fantastic ideas of his own that could somehow trump the centuries of proven prosperity that free market capitalism has repeatedly provided across the globe:

Building a sizable, vibrant and growing middle class requires great schools, a highly trained workforce and an attractive and exciting quality of life. That’s why initiatives like common core standards, heightening our focus on STEM education (science, education, engineering and math) and investing in our state and national parks and open space continue to be so important.

Yes, nothing will get this country back on its economic feet faster than Government spending (sorry, "investment") on our state and national parks and, umm, "open space."  We're saved!

Ugh.

No wonder liberals are openly wishing for an alien invasion.  They've clearly run out of earthly ideas.

Monday Quick Hits

Lots of headlines and cools stuff over the last few days, so let's get right to it:

• Obama Administration: We'll increase exports by, err, attacking Chinese imports.  Last week, the US Department of Commerce announced a bevy of new trade remedies policies aimed at achieving the President's export-expansion goals by increasingenhancing the accuracy of antidumping and countervailing duties on imports from "non-market economies" (essentially Vietnam and China).  With almost 60% of all imports into the United States capital goods and equipment - things that American companies (including exporters) need to remain globally competitive - I'm at loss as to how making Chinese and Vietnamese imports more expensive will expand US exports, and the WSJ agrees: "President Obama has been making some encouraging pro-trade noises recently, after a protectionist first year. So it's troubling to see him veering off course again with a new proposal to boost American exports by cracking down on imports from China."

• A funny thing happened on the way to attacking Chinese imports...  So while DOC is plotting to "get tougher" on hypercompetitive Chinese imports, more news arrives showing that China's labor cost advantages - and thus its global competitiveness - appear to be rapidly shrinking: "China’s rising wages are cutting the country’s cost advantage over other manufacturing centers such as Mexico, according to Flextronics International Ltd., the world’s second-largest custom electronics maker.... Flextronics, which supplies to Hewlett-Packard Co. and Cisco Systems Inc., has been forced to increase wages in China in line with government regulations and growing affluence in the fastest-growing major economy. Larger rival Foxconn Technology Group said this month it will move production away from China’s coastal regions after announcing a doubling of wages at its largest production bases in the south east." So if you needed any more evidence that government is just really, really bad at keeping up with the market, well, there you go.

• United States in 2009 was the most energy-efficient economy in the history of the world.  Ever.  From Mark Perry: "Since 1990, the energy consumption per unit for five of the most common household appliances has fallen so consistently over the last twenty years that today's household appliances use between 20% (air conditioner) and 73% less energy (clothes washer) than in 1990."  Very, very cool.

• "Glass City" museum buys Chinese glass, unintentionally demonstrates the complexity of US-China trade and the global economy.  The WSJ has an excellent article today on why construction of the Toledo Museum of Art's $30 million Glass Pavilion required some specialized Chinese glass: "No one in the U.S. had the capability to satisfy cutting-edge architectural specifications for the curving pavilion, even though the 2006 job involved techniques advanced decades ago by Toledo inventors: bending and laminating glass. The pavilion features 360 thick glass panels, each up to 13.5 feet tall, eight feet wide and weighing over 1,300 pounds." Of course, it's actually not that simple, so be sure to read the whole article.  My favorite part: American politicians and unions blaming unfairly subsidized Chinese imports for destroying the US glass industry (as opposed to their own economy-killing fiscal policies and labor contracts), despite the fact that (i) although China makes about 45% of the world's glass, it exports almost none of that production and (ii) the little that China does export to the United States is really, really bad: "Most of China's glass output is such low quality, it has no market other than China. And much of the Chinese glass now hitting U.S. shores is chiseling into market extremities where profit margins are thinnest: the cheapest salt shakers, table tops and replacement windshields."  Exit question: if Toledo had been forced to follow "Buy American" policies, would their snazzy museum have been built as designed?  Hmmm.

• Speaking of manufacturing, guess what part of the country's getting a brand new Toyota plant and a couple thousand jobs?  If you guessed a part that has less regulation, lower taxes and isn't controlled by labor unions, you'd be right: "  Toyota began taking applications Monday for 1,350 production and maintenance workers at its Blue Springs, Miss., plant that had been stalled while the Japanese automaker waited for the worldwide recession to end.... Starting pay is $15 per hour, ranging up to $21, for production workers and $18 to $21.25 hourly for maintenance workers. Maintenance salaries will top out at $25 an hour.... The company has said it would create 2,000 jobs at the Blue Springs plant. New auto plants such as this also spin off about 2,000 supplier jobs."  Import-blaming governors Jennifer Granholm (MI) and Ted Strickland (OH) were unavailable for comment.

• Skepticism about US-Korea FTA is well-grounded.  NRO's Stephen Spruiell reports on the administration's, ahem, revived efforts to advance the KORUS FTA and - based on the White House's complete lack of effort on the pending US-Colombia FTA despite amazing improvements in Colombian labor union violence - is very, very skeptical (be sure to check out the great charts).  And based on the latest reports out of Korea, it appears that Spruiell's skepticism is well-deserved: "'The Korean government has not promised any kind of concessions concerning the Korea-United States free trade agreement,” said Choi [Seok-young, Korean deputy minister for trade]. 'The U.S. Congress is currently in recess, and we have not yet been offered anything from the U.S. government concerning the FTA.'  He added that since the U.S. government has not offered anything yet, it is not the right time to talk about the Korean government’s plans on disputes over imports of U.S. autos and beef."  Awesome.

• Cato wages an all-out assault on fallacies surrounding last week's revised GDP figures and the US trade deficit.  First, Alan Reynolds provides an eye-opening look at "what everyone missed" in last week's revised GDP numbers (hint: rising domestic consumption, real disposable personal income, and business fixed investment).  Then, Dan Griswold calmly corrects the Washington Post's misreporting that the trade deficit harmed GDP growth: "The fatal flaw of the [Post's] story line... is that it assumes that rising imports slow economic growth.  That assumption, in turn, rests on a simplistic Keynesian view that if a portion of domestic demand is satisfied by spending on imports, that means less demand for domestically produced goods, thus less output and lower employment.  That view neglects the supply-side role of imports.  More than half of what we import consists of goods consumed by producers—capital machinery, raw materials, parts and other intermediate inputs. Those imports help us produce more, not less.  The Keynesian view also confuses cause and effect: Imports usually grow in response to RISING domestic demand. Consumers more eager to spend 'swelling sums' on imports typically buy more domestically produced goods as well."  Finally, Dan Ikenson piggybacks off Griswold's post with our charts-of-the-day, which clearly demonstrate that "neither imports nor trade deficits cause U.S. job loss or slower economic growth.   If anything... imports and the trade deficit rise when the economy is growing and creating jobs, and they both fall when the economy is contracting and shedding jobs":

• Feel free to judge the President by the company he keeps.  From the Hill: "President Obama will spend Labor Day alongside AFL-CIO President Richard Trumka, the union announced Monday. Obama, Secretary of Labor Hilda Solis and Trumka will all participate in a Labor Day "celebration and rally" in Milwaukee on Monday, an appearance confirmed by the White House this afternoon, which separately announced the president would travel to Wisconsin for the Laborfest. The appearance is another recent sign of unity between Obama and Trumka — the pair had sometimes had an adversarial relationship over the past year on issues like stimulating the economy and healthcare reform...."  Woo hoo! Laborfest!

And on that happy note, folks, let's call it a night.

Thursday Quick Hits

I know I've been a tad delinquent this week, but it's summer, and, well, the heat makes me lazy:

• America's Bad Trade Parenting Continues.  I've noted several times now about how the United States loves to practice "do as I do, not as I say" trade policy, particularly when it comes to enforcement.  Now, it appears that the US government, fresh off its near-constant (and often justified) criticism of foreign intellectual property protections, is receiving loud complaints from the Japanese government and US/Japanese companies for its failure to policy "manga" piracy.  What is "manga," you ask?  Well, I'm not exactly sure, but I do know that it's a kind of Japanese anime', and that American "fans" are apparently stealing the heck out of it.

• Pascal Hearts China.  WTO Director General Pascal Lamy has told all the haters out there to back off the China-bashing a bit.

• Democrats Don't Heart KORUS.   For American free traders, November 2010 can't come fast enough: "'At a time when our economy is struggling to recover from the worst downturn since the Great Depression, it is unthinkable to consider moving forward with another job-killing FTA,' the 110 members of the U.S. House of Representatives said in a letter to Obama....  'We oppose specific provisions of the agreement in the financial services, investment and labor chapters because they benefit multi-national corporations at the expense of small businesses and workers,' they said."  Oh, yeah, those horrible Korean labor standards, I almost forgot! 

• Three Guesses Why Democrats Don't Heart KORUS.   As relayed to us by one of their own (liberal blogger Mickey Kaus), here's in a nutshell the reason why 110 House Democrats wrote that angry anti-KORUS letter: "I think the Democratic Party has been captured by its interest groups. The unions are the main one."  Kaus was speaking about the California Democratic Party, but the theme certainly applies nationally too.

• Race to the Top, part 789.  More strikes, and more pay raises in China: "Workers at two suppliers for foreign automakers in Southern China returned to work on Thursday after obtaining hefty pay rises, ending strikes that again highlighted the carmakers' vulnerability to their Chinese suppliers."  I don't know what's more tongue-firmly-in-cheek surprising: the strikes themselves or the lack of armed suppression by the evil multinational corporations. 

China's Race to the Top, Ctd.

Today's New York Times gets in on the new theme - China's labor force is movin' on up:

If Wang Jinyan, an unemployed factory worker with a middle school education, had a résumé, it might start out like this: “Objective: seeking well-paid, slow-paced assembly-line work in air-conditioned plant with Sundays off, free wireless Internet and washing machines in dormitory. Friendly boss a plus.”

As she eased her way along a gantlet of recruiters in this manufacturing megalopolis one recent afternoon, Ms. Wang, 25, was in no particular rush to find a job. An underwear company was offering subsidized meals and factory worker fashion shows. The maker of electric heaters promised seven-and-a-half-hour days. “If you’re good, you can work in quality control and won’t have to stand all day,” bragged a woman hawking jobs for a shoe manufacturer.

Ms. Wang flashed an unmistakable look of ennui and popped open an umbrella to shield her fair complexion from the South China sun. “They always make these jobs sound better than they really are,” she said, turning away. “Besides, I don’t do shoes. Can’t stand the smell of glue.”

Assertive, self-possessed workers like Ms. Wang have become a challenge for the industrial titans of the Pearl River Delta that once filled their mammoth workshops with an endless stream of pliant labor from China’s rural belly.

In recent months, as the country’s export-driven juggernaut has been revived and many migrants have found jobs closer to home, the balance of power in places like Zhongshan has shifted, forcing employers to compete for new workers — and to prevent seasoned ones from defecting to sweeter prospects.

The shortage has emboldened workers and inspired a spate of strikes in and around Zhongshan that paralyzed Honda’s Chinese operations earlier this month. The unrest then spread to the northern city of Tianjin, where strikers briefly paralyzed production at a Toyota car plant and a Japanese-owned electronics factory.

Although the walkouts were quelled with higher salaries, factory owners and labor experts said that the strikes have driven home a looming reality that had been predicted by demographers: the supply of workers 16 to 24 years old has peaked and will drop by a third in the next 12 years, thanks to stringent family-planning policies that have sharply reduced China’s population growth.

In Zhongshan, many factories are operating with vacancies of 15 to 20 percent, compelling some bosses to cruise the streets in their BMWs and Mercedeses in a desperate hiring quest during crunch time.

The other new reality, perhaps harder to quantify, is this: young Chinese factory workers, raised in a country with rapidly rising expectations, are less willing to toil for long hours for appallingly low wages like dutiful automatons....

But the more immediate challenge is to the Chinese export machine, which churns out about a third of China’s gross domestic product. Stanley Lau, deputy chairman of the Hong Kong Federation of Industries, whose 3,000 members employ more than three million workers, said he had been advising factory owners to offer better salaries, to treat employees more humanely and to listen to their complaints.
“The young generation thinks differently than their parents, they have been well protected by their families, and they don’t like to ‘chi ku,’ ” Mr. Lau said.

The expression “chi ku,” or eat bitterness, is a time-honored staple of Chinese culture. But for young workers in Zhongshan, it is not the badge of honor that an older generation wore with pride....

Read the whole thing here.  Now can anyone honestly say that China's workers would be better off if the West had isolated the ChiComs back in the 70s and 80s, refused their entry into the WTO a decade ago, or imposed steep tariffs on all their products today?

Puh-leeze.

Wednesday Quick Hits

I'm travelling once again, so just some headlines and snarky commentary tonight:

• At this rate, the only onese left running in the "race to the bottom" will be a unicorn and a leprechaun.  More proof in China that the race to the bottom is a myth.  (Get it?) (h/t Alec Van Gelder).

• "The value goes to where the knowledge is."  The iPhone4 continues where previous iPods left off - providing proof that, despite misleading "trade deficit" stats between the U.S. and China, the real winners are Apple's employees, shareholders and consumers.)  Mark Perry provides us with some great commentary and the money graphic:

• The only difference between the "green economy" and Three Card Monty is that we're not forced to play monty.  This time, NRO's Kevin Williamson explains how many of your and my tax dollars are going to BP in the form of subsidies for corn ethanol.  Hint: it's a-%&*!ing-lot.

• NYT Editors: "Hey, did you ever notice that the United States no longer has a trade policy?"  Yes, this editorial (unsurprisingly) was written 12 months late, but, hey, at least they've finally noticed.

Umm, Yeah, About That Whole "Race to the Bottom" Thing...

One of the more prevalent protectionist myths out there is that free trade leads to an inevitable "race to the bottom" for global labor and environmental standards.  The theory goes something like this: evil, profit-hungry corporations will seek out the least-regulated places on earth to do business, and those locales will "fight" for the corporations' evil business by racing to lower their already-awful labor/environmental regulations; the corporations will greedily profit, and the entire developing world will turn into one giant toxic dump full of sweatshops that use slave and/or child labor (or something).  This "race to the bottom" concept is pretty simple, but - unfortunately for protectionists (and fortunately for the developing world) - it's also totally wrongheaded.  I've already blogged a little bit on how this overused theory just doesn't jive with economic reality, as history shows that free trade begets economic growth which begets increased domestic consumption and demand which begets upward pressure on wages through, among other things, bottom-up demands for better working and living environments.

Two recent articles about Chinese labor conditions, however, really hit my arguments home, I think.  That they occur at protectionists' ground zero is an added bonus.  The first is a report from last week's Wall Street Journal that a recent strike at a Honda plant in coastal China could be a harbinger of a broader trend:

The dynamics of China's economic development are moving inexorably in favor of the country's workers. China's recent economic growth has mostly favored owners of capital, but demographic trends mean labor shortages are set to grow, tipping the income equation in labor's favor....

That labor supply is running dry might seem strange in a country of 1.3 billion people. But the trend's been discernible for a while, as the effects of an aging population and China's one-child policy kick in. In the past 10 years, the population of 20-to-39-year-olds -- from which most manufacturing labor is drawn -- has fallen 22%, Merrill Lynch says.

Making it more difficult for coastal manufacturers to attract workers, without offering higher wages, is that Beijing's economic stimulus efforts have favored the country's middle to western regions -- drawing labor away from the east coast. High housing prices in China's major eastern cities also discourage potential migrants from moving without the promise of adequate reward.

Many economists see the upward pressure on wages as a good thing. Higher incomes for households could help their consumption take a greater share of the economy, reducing the need to rely on investment and net exports. If companies respond by moving their manufacturing bases inland -- as they have started to do -- this could also help reduce regional disparities in economic development....

Most of all, perhaps, China's leaders will have to become more tolerant of institutions, such as labor unions, which can maintain a dialogue about the wishes of workers without getting bogged down in the kind of unrest now seen at Honda.

Honda's problems are a signal to Beijing that it is going to have to become more flexible.

A story from yesterday's New York Times echoes the Journal's findings and adds some other insights about what's going on in China right now:

Coastal factories are increasing hourly payments to workers. Local governments are raising minimum wage standards. And if China allows its currency, the renminbi, to appreciate against the United States dollar later this year, as many economists are predicting, the relative cost of manufacturing in China will almost certainly rise.

The salaries of factory workers in China are still low compared to those in the United States and Europe: the hourly wage in southern China is only about 75 cents an hour. But economists say wage increases here will eventually ripple through the global economy, driving up the prices of goods as diverse as T-shirts, sneakers, computer servers and smartphones.

“For a long time, China has been the anchor of global disinflation,” said Dong Tao, an economist at Credit Suisse, referring to how the two-decade-long shift to manufacturing in China helped many global companies lower costs and prices. “But this may be the beginning of the end of an era.”

The shift was illustrated Sunday, when Foxconn Technology, one of the world’s largest contract electronics manufacturers and the maker of well-known products that include Apple iPhones and Dell computer parts, said that it was planning to double the salaries of many of its 800,000 workers in China, beginning in October. The new monthly average would be 2,000 renminbi — about $300, at current exchange rates....

Last week the Japanese automaker Honda said it had agreed to give about 1,900 workers at one of its plants in southern China raises of 24 to 32 percent, in hopes of ending a two-week strike, according to people briefed on the agreement. The new monthly average would be about $300, not counting overtime.

And last Thursday, Beijing announced that it would raise the city’s minimum monthly wage by 20 percent, to 960 renminbi, or about $140. Many other cities are expected to follow suit.

Analysts say the changes result from the growing clout of workers in China’s economy, and are also a response to the soaring food and housing prices that have eroded the spending power of workers from rural provinces. These workers, without factoring in the recent wage increases by some employers, typically earn $200 a month, working six or seven days a week.

But there are other reasons. Analysts say Beijing is supporting wage increases as a way to stimulate domestic consumption and make the country less dependent on low-priced exports. The government hopes the move will force some export-oriented companies to invest in more innovative or higher-value goods.

But Chinese policy makers also favor higher wages because they could help ease a widening income gap between the rich and the poor.

Big manufacturers are moving to raise salaries because they are desperate to attract new workers at a time when many coastal factory cities are struggling with labor shortages.

A Foxconn executive said last week that the turnover rate at its two Shenzhen campuses — which employ over 400,000 people — was about 5 percent a month, meaning that as many as 20,000 workers were leaving every month and needed to be replaced.

Marshall W. Meyer, a China specialist at the Wharton School at the University of Pennsylvania, says that demographic changes in China are reducing the supply of young workers entering the labor force and that this is behind some of the wage pressure.

“Demography will do what the Strategic and Economic Dialogue hasn’t: raise the cost of Chinese goods,” he said, referring to United States-China talks on Chinese currency reform and other economic issues. “There is no way out.”

Economists say many of the same forces that were at work in 2007 and 2008, when China’s economy was overheating, have returned and even intensified this year.

Local governments have stepped up enforcement of labor and environmental regulations, driving up production costs....

Economists say a necessary restructuring is under way, one that should allow the nation’s huge “floating population” of migrant workers to better share in the benefits of growth and stimulate domestic consumption....

So to recap: trade with China has spurred economic growth, domestic demand and job creation.  Combined with China's demographics and some government policy, these things have caused upward pressure on wages, a reduction in income inequality, and a move to higher-value (and cleaner) production.  And such dramatic changes are causing even an authoritarian government like the one in China to contemplate - gasp! - permitting labor unions.  Oh, and these market-driven events are accomplishing what years of top-down, diplomatic yammering between the US and Chinese governments couldn't. 

Now, there's no doubt that plenty of problems in China remain (like this one), but that doesn't change one very simple fact illustrated by the examples above and many others: free trade has definitely caused a "race" to be run in China (and elsewhere), but it sure ain't to the bottom.