Politics & Policy

Romney vs. Renminbi

With Middle Eastern mobs making war on the United States, Barack Obama and Mitt Romney are declaring a trade war on China in the hopes that crude and economically illiterate attacks on Beijing will play big in the swing states — attacking Canton (Guangzhou) for the benefit of Canton (Ohio). Economically destructive political opportunism is of course precisely what we expect of the Obama administration, but we expect more from Romney.

Romney has been attempting to get some mileage out of claims that the president has been soft on Chinese trade shenanigans, and Obama has responded in character by using executive powers for political purposes, in this case by filing a new action against China in the World Trade Organization and escalating a previous action. Romney rightly called that a campaign stunt, and then reiterated his promise to surpass it with a stunt of his own: labeling China a “currency manipulator” and imposing economic sanctions. China had a response, too, filing a WTO complaint of its own against U.S. “anti-dumping” rules that it regards as unfair trade restrictions.

China is run by a cabal of decrepit tyrants who do in fact seek to exploit trade barriers to the benefit of the Chinese economy; that much is undeniable. But both Romney and Obama grossly exaggerate the impact of Chinese maneuvering as a way to escape confronting the much deeper and more serious challenges facing our economy. When the U.S. economy was booming in the late 1990s, China was a trade miscreant. When the economy was percolating along decently in the early millennial years, China was a trade miscreant. And when the U.S. economy tanked in 2008–09, China was a trade miscreant. Chances are very good that whatever the state of the U.S. economy in 2013, China is going to be a trade miscreant. That is a problem, but it is not a headline problem or even a top-25 problem.

The integration of global markets means that U.S. workers and businesses will face increased competition from overseas rivals, and this is especially difficult for relatively low-skilled workers and for those enterprises that seek advantages from employing them. That is a fact of economic life that will persist independently of any policy pursued or not pursued by the junta in Beijing. U.S. firms have lost out to more competitive enterprises based in low-wage countries such as China and India, but also to businesses in high-wage countries such as Germany and Canada. The portion of our economic troubles that can be blamed on Chinese wiles rather than brute economic realities is small if not trivial.

If we may be so gauche as to introduce some relevant facts into the political discussion, China is if anything today a less active currency manipulator than it has been at any time in recent decades. The renminbi, though it remains artificially devalued, has appreciated some 23 percent against the dollar since 2005. Beijing has been allowing the renminbi to appreciate not in response to pressure from Washington but because the Chinese authorities want their currency to play a more important role in international commerce, and even dream of the day in which it replaces the dollar as the preferred global reserve currency.

Because the renminbi remains a tightly managed currency, accounts and contracts in such key global commodities as oil are rarely if ever negotiated or settled in it; the world prefers the dollar, and the renminbi is not even within striking distance of such also-rans as the euro or yen. China has been slowly but steadily relaxing its foreign-exchange controls to accommodate its desire to play a more important role in the world economy. Which is to say, Romney is angrily demanding that China please the United States by doing what China already is doing for its own reasons. He should learn to take “yes” for an answer.

During our current period of competitive devaluation, it would be difficult to find a country of any economic significance that is not a currency manipulator. The Federal Reserve might as well be called the “Department of Currency Manipulation.” The ironic fact is that the Fed and the Chinese manipulate currency in part by doing precisely the same thing: buying up U.S. Treasury bonds.

China subsidizes politically sensitive businesses. And the United States maintains vast bureaucracies for precisely that purpose, the U.S. Department of Agriculture prominent among them. The Obama administration seeks to use tax credits to subsidize “green energy” follies dear to its base, and Romney proposes to use targeted tariffs and rules requiring reciprocal government-procurement practices to do the same.  

The United States should of course continue to press legitimate grievances at the WTO and elsewhere, but we should do so in the course of normal business, to the extent that negotiating chicken-roaster sales with a gulag state might be considered normal business. A heated presidential campaign is no place to sort out these differences, and a Republican presidential campaign is no place to appeal to long-discredited trade protectionism in the hopes of scoring a few extra Rust Belt votes. Romney of all people should appreciate that allowing politicians to define “fair trade” means inviting trade policies that benefit political incumbents rather than the economy as a whole. He should imagine what it would have been like trying to run Bain Capital while appeasing every member of Congress whose district might have been inconvenienced by an intelligent and necessary business decision.

The United States, as Romney has rightly observed, suffers from many economic problems: a tax system that hinders the nation’s competitiveness, a cumbrous and unpredictable regulatory environment, and a declining stock of human capital among them. Each of these is a far more serious problem than Chinese trade policy — and, perhaps more important, each is within the portfolio of possible solutions that a Romney administration might effectively enact. The last 30 years suggest very strongly that Washington’s ability to influence economic policy in Beijing is quite limited.

Few if any substantive U.S. interests would be served by provoking an unnecessary trade war with China, while many substantive U.S. interests — economic and otherwise — could be harmed. Romney is running as the candidate of economic competence and prudence, neither of which counsels a potentially destabilizing confrontation with China.


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