President Trump blames China’s trade policy for hurting U.S. exports — and U.S. jobs. But there’s another important piece to the China trade story: how its growing economic power may also influence the labor and environmental practices of its trade partners.
Just how much do trading relationships shape domestic politics? Starting with the debates on regulatory races to the bottom and the pollution haven hypothesis, political scientists have been investigating this question for more than 30 years. There was much debate in the 1990s when the North American Free Trade Agreement came into force and when China later joined the World Trade Organization.
We decided to take a closer look at China’s rising economic influence in Africa. China has emerged as Africa’s leading trade partner as it seeks to tap Africa’s vast mineral wealth to meet the resource needs of its growing economy. Yet some fear this burgeoning trading relationship will destroy Africa’s natural environment and roll back labor protections across the continent.
What is the “Shanghai Effect?”
In the right circumstances, trade can be a positive force for labor rights and the environment in developing countries. Trade with Europe and North America puts pressure on overseas contractors to raise labor and regulatory standards — as Nike and Apple discovered when labor abuses in their supply chains were reported in the Western media. Rights groups in the West can also lobby their governments to invoke sanctions against exporting countries that don’t protect workers and the environment.
But when developing countries export to China instead, this process of lobbying firms or governments doesn’t seem to work. Exporting countries’ regulatory standards start to look as weak as those in China, a negative pressure we call the “Shanghai Effect.” A number of scholars and activists fear the Shanghai Effect presses down labor rights in Africa, especially as China displaces Europe and North America as the most important buyer of African exports such as Mauritanian iron and Zambian copper (see figure 1).
In a recent paper in World Development, we look at how environmental, labor and human rights groups in importing countries pressure importing firms to improve the practices of their trading partners abroad.
We identify two reasons that exporting to China could degrade labor practices. First, African exporters face pressure to keep labor costs low for fear of losing business with cost-conscious Chinese importers.
Second, even when African labor abuses are reported, there are no major Chinese labor or human rights groups to press Chinese companies to correct abuses in their supply chains. China itself has a poor record on labor rights; why expect China to hold other countries to a higher standard?
There’s both good news and bad news for labor standards in African nations
The trade-labor rights story turns out to be a bit more complex in practice. Each African country has a different, fluctuating mix of pressures from the countries importing their goods. If most of the export destinations for a particular African country lie in the global North — where regulatory standards are high — as opposed to, say, India, Russia or Brazil, the net effect of importer pressure may be good for domestic labor rights.
But if an African country shifts more of its exports to a country such as China, with low regulatory standards even when compared with many African nations, the net effect of the absence of importer pressure may be falling labor standards.
Our study of 49 African countries from 1985-2010 suggests that there’s good news and bad news. Our statistical analysis of all available data on African countries’ trade and labor standards finds that averaged across the continent, increasing trade with China has had only a small negative effect on labor rights.
So are concerns about the Shanghai Effect overblown? Maybe not. Although labor rights in the average African country aren’t yet affected by China, in specific countries such as Mauritania and Congo, where exports to China have risen sharply, the Shanghai Effect appears to be substantial. So even if China is not responsible for poor or declining labor standards in all of Africa, in particular countries it may shoulder considerable responsibility.