There are certain topics of which the New York Times never tires: e.g., elite-college admissions, the rare joys of rent-controlled apartments, New York City private-school scandals, and unjust country-club rules. There are umpteen things which their readers can’t get enough of and which their reporters are well qualified to cover, vastly out of proportion to their objective importance. (Of course, I’d have to count myself among their readers who are pleased to give them a little golf clap when they come up with, say, an Ivy League–athletics sex scandal involving a Rhodes Scholarship candidate who was in George Bush’s fraternity.)
But relevant to this election cycle is their dogged obsession with Mitt Romney and Bain Capital. Long after the rest of the political conversation has moved on, the Times has continued to obsess over all the minutiae of Mitt’s business affairs, as if that one new company in which he has a ten-thousandth of his wealth invested via a blind trustee from Ropes and Gray will really convince voters what an evil man he is.
Thus, their story today: “As Romney Repeats Trade Message, Bain Maintains China Ties.” You see, Candidate Romney has constantly complained that China has unfair trade policies, or more accurately, that he will be tougher than President Obama about them, and yet he trades with China. It’s not entirely clear how far President Obama wants to take his “New Economic Patriotism” message, but I don’t think anyone in the race is calling for autarky or an end to “China ties.” But here’s their claim:
China-related holdings by Bain funds in which Mr. Romney has invested are a reminder of how he inhabits two worlds that at times have come into conflict during his campaign for the White House.
As a candidate, Mr. Romney uses China as a punching bag. He accuses Beijing of unfairly subsidizing Chinese exports, artificially holding down the value of its currency to keep exports cheap, stealing American technology and hacking into corporate and government computers.
“How is it China’s been so successful in taking away our jobs?” he asked recently. “Well, let me tell you how: by cheating.”
But his private equity dealings, both while he headed Bain and since, complicate that message. Mr. Romney’s campaign insists he has no control over his investments since they are held in a blind trust. That said, a confidential prospectus for one of the Bain funds, obtained by The New York Times, promotes China as a good investment for some of the same reasons that Mr. Romney has said concern him: “Strong fundamentals” like manufacturing wages 85 percent lower than what Americans earn, vast foreign exchange reserves and the likelihood that China will surpass the United States as the world’s largest economy. “Accordingly, Bain Capital expects to see an increasing array of high-growth companies available for investment,” the prospectus says, noting the relative dearth of private equity in China.
In other words, well, okay, we know that Romney hasn’t personally chosen to invest in these companies and thus we can’t quite criticize him, but look at what it says in a marketing document from a company he no longer works for!
It’s actually worth looking at what that document does provide as reasons why Bain considers China a good place to invest: “‘Strong fundamentals’ like manufacturing wages 85 percent lower than what Americans earn, vast foreign exchange reserves and the likelihood that China will surpass the United States as the world’s largest economy.”
Now, Romney has expressed concern about China overtaking the United States, and their low wages can be partially attributed to China’s moderately devalued currency, but it’s absurd to say that Bain is invested in China or is making a profit there because of “the same reasons that Mr. Romney has said concern him.” Bain benefits from the strong fundamentals of the Chinese economy, and these actually aren’t, in the main, the manipulative policies China’s implemented to promote exports.
The Times does describe a company Bain’s invested in which has benefited directly from some of Chinese-government subsidies:
The tale of Asimco Technologies, an auto parts manufacturer whose plants dot eastern China, would seem to underscore Mitt Romney’s campaign-trail complaint that China’s manufacturing juggernaut is costing America jobs.
Nine years ago, the company bought two camshaft factories that employed about 500 people in Michigan. By 2007 both were shut down. Now Asimco manufactures the same components in China on government-donated land in a coastal region that China has designated an export base, where companies are eligible for the sort of subsidies Mr. Romney says create an unfair trade imbalance.
The assumption, apparently, is that Asimco closed its plant in the U.S. and moved it to China because of the export-promotion subsidies that Romney has decried on the campaign trail. While the subsidies do affect Asimco’s bottom line and therefore aren’t irrelevant, it’s obviously ludicrous to suggest that they moved a factory halfway around the world because the Chinese government provided the land for free — as I recall, land is pretty cheap in Michigan these days, too. Rather, there’s a wide range of reasons why China is a much more competitive and attractive manufacturing base right now than the U.S. is, and subsidies don’t explain most of it.
Take the fact that manufacturing wages are 85 percent lower in China — if President Romney really did decide to take a hit and force China to stop devaluing its currency, the renminbi might rise, to be really generous, by one-third against the dollar (it’s not nearly as undervalued as it used to be). So the Shenzhen schlub that used to cost a Bain-owned company $1.50 an hour in China to replace the $10 dollar manufacturing worker in the U.S.? We can estimate he now costs . . . $2 an hour, still just a fifth of what he would require here. For manufacturers making marginal decisions, of course, that makes a difference, but it’s not going to tip the equation back toward the U.S. for the vast majority of companies.
Here’s something it definitely would do: Make your iPhone more expensive. Forcing China to let the renminbi strengthen against the dollar would erode the relative value of our currency and make any products we’re importing from China more dear; the costs, that is, wouldn’t just accrue to outside investors like Mitt Romney, but to consumers too.
It’s also important that ordinary Americans benefit from investments like Bain’s: The Times admits that “President Obama, a former Illinois state senator, has as much as $100,000 in a state retirement plan that contains shares of Sensata Technologies, [an] auto parts company controlled by Bain that is closing its Illinois factory.” (Deroy Murdock catalogued the profits “Obama’s base” gains from Bain in a recent NRO piece.) And anyone who wants American savers benefiting from the returns these strong economic fundamentals are generating should also appreciate that Romney’s firm is providing a useful vehicle for that, when, as the Times explains, PE and other forms of investment in China are highly restricted.
It’s certainly possible that China’s abandoning its export subsidies would increase U.S. employment, but it’s going to cost U.S. importers, consumers, and investors, and possibly more than it would gain us in jobs. Two economics professors from the University of Nottingham found that eliminating all of China’s pure-export subsidies “would improve welfare in China by 3% while reducing welfare in the rest of the world by 1%,” as they explained in a Wall Street Journal op-ed (the people really ripped off by the Heavenly Kingdom’s export policies are Chinese consumers).
In a lot of ways, actually, President Obama has been plenty “tough” on China. In particular, to counter export subsidies for China’s tire industry, he slapped substantial tariffs on the companies, a story proffered by adviser David Axelrod as “a case we won” by standing up to China. In deriding Romney as a supporter of “outsourcing,” Axelrod accused Romney of “denouncing that as protectionism” — which is precisely what it was, and pricey protectionism, too, with higher prices costing American consumers about $1 billion, or $900,000 for each job saved.
Moreover, many of China’s advantages are increasingly operational rather than financial: The brouhaha over Foxconn’s Apple manufacturing plants illuminated a lot of the ways in which Chinese manufacturers, partly with more efficient plants and workers, and partly by agglomeration effects, are just better at doing what they do than U.S. manufacturers. It’s not clear we’d even win back the companies who do find their costs on the margin between China and the U.S., for whom an unmanipulated renminbi or no more subsidized loans in China could make returning to the U.S. financially sensible. One example of China’s incomparable strengths came in a New York Times story:
For years, cellphone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc., to manufacture large panes of strengthened glass. But figuring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, hundreds of pieces of glass to use in experiments and an army of midlevel engineers. It would cost a fortune simply to prepare.
Then a bid for the work arrived from a Chinese factory.
When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.
The Chinese plant got the job.
“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”
All of the above issues, basically, are good reason why Romney investing in China isn’t any more hypocritical than Ted Strickland buying a Made in China clip-on tie. But they also indicate why Romney’s anti-China rhetoric is a lot of bluster, and the economic benefits to “getting tough on China” are questionable — they’re vastly less sure than the political ones, as Kevin Williamson has written extensively and persuasively. There actually are some opportunities to repatriate manufacturing jobs, but doing so requires increasing American competitiveness overall, not trying to enforce fairer rules of trade; it’s lack of the former, not the latter, which explains China’s success. In this respect, both Obama and Romney have been guilty of substituting applause lines for actually useful policy; if the Times were as serious-minded as it pretends to be, they would be writing about that issue, not Mitt’s grandkids’ trust fund.
But leave aside the economics — what about the House Intelligence Committee’s recent claim that trade with Chinese telecoms can raise national-security risks? Surely there’s a tenuous connection to be found to Mitt there. Indeed:
[A Bain] Asia fund withdrew from another deal in 2008 that could have proved politically embarrassing to Mr. Romney. After the Bush administration objected, Bain dropped plans to team up with a Chinese technology giant, Huawei, to buy 3Com, a network equipment maker that supplies software and equipment to the Pentagon and other federal agencies.
The administration said intelligence reports indicated that Huawei, which was founded by a former People’s Liberation Army officer, posed “national security problems,” according to a lawsuit stemming from the deal’s collapse. A House Intelligence Committee report released Monday said Huawei continued to have troubling connections to the Chinese government, something the company denies.
That’s right, the fund invested in by Mitt Romney’s independent, blind trustee considered investing in Huawei, and only pulled out of the deal after hearing the concerns and recommendation of the U.S. government. This is some heady, disturbing stuff.