Categorized | China, Currency, Trade

China and Its Trade Practices Are Coming to the Debates


Reposted from The New York Times


China and Its Trade Practices Are Coming to the Debates

Sharon LaFraniere | October 15, 2012 | NY Times

Halfway through the fall debates, the sparring between President Obama and Mitt Romney and their running mates has been notable for the absence of an issue Mr. Romney has pressed on the campaign trail and in his television advertising: China.

When American policy toward Beijing does come up Tuesday night — or next week, when it will be one of five designated topics in a debate focused solely on foreign affairs — Mr. Romney will have plenty of arguments to draw on.

In one recent ad, he accused the Obama administration of letting hundreds of thousands of American factory jobs vanish in the face of what he calls China’s unfair trade practices. “It’s time to stand up to the cheaters,” he says in the ad, “and make sure we protect jobs for the American people.”

And that is just part of a fusillade of soft-on-China accusations that Mr. Romney has leveled at Mr. Obama, who he says has allowed the Chinese to manipulate their currency, distort fair trade, steal American technology and hack into American government and corporate computers.

The Obama campaign has hardly been silent. In an ad earlier this month it said that while Mr. Romney ran a private equity firm, it invested in a Chinese company that exploited low-wage labor. “Mitt Romney tough on China? Since when?” the ad asks.

Many Asia experts say Mr. Romney’s comments are indeed tough. They begin with a pledge to brand Beijing a currency manipulator on his first day in office, and end with promises to increase America’s already formidable military presence in the western Pacific and sell new American fighter jets to Taiwan. Analysts say such moves would amount to a profound shift in a policy toward China that has remained remarkably constant for decades across Republican and Democratic administrations. And they would be virtually certain to upend relations with Beijing’s leaders.

Whether a President Romney would carry out such pledges, however, is another matter. ”There is a lot of game playing on both sides,” said Uri Dadush, director of the International Economics Program at the Carnegie Endowment for International Peace. “Once in office, presidents tend to recognize that the Chinese don’t react well when you point a gun to their head.”

Even some of Mr. Obama’s own current and former aides acknowledge that Mr. Obama went too far to accommodate China’s leaders during his first year in office. The White House hardened its approach after the Chinese gave the cold shoulder to the United States on issues ranging from climate change to Iran’s nuclear program. The president then pursued trade grievances, firmed up diplomatic and military ties with Beijing’s neighbors and designated the western Pacific as a central focus of American military strategy.

Mr. Romney promises to display even more spine.

“The policy that Obama has adopted of constantly acquiescing to China, constantly giving China more room in the hope that China will grant us some concessions, simply hasn’t worked,” said Alex Wong, the campaign’s foreign policy director.

Mr. Romney often promises to officially declare that China is deliberately weakening its currency, the renminbi, to make its exports more competitive, thereby costing American jobs. That action would only trigger bilateral consultations. But should Beijing refuse to bend, he has said, he would instruct the Commerce Department to impose duties on Chinese imports.

In the 2008 presidential campaign Mr. Obama also promised to label China a currency manipulator. But once in office, he opted for behind-the-scenes pressure on Beijing to let the renminbi strengthen. So has every president since 1994. Many economists argue that the pressure, combined with China’s own desire to rebalance its economy, has worked. The renminbi is no longer grossly undervalued, they say, although other powerful hidden subsidies, like artificially low interest rates, remain. Since 2005, the renminbi has appreciated about 30 percent, the International Monetary Fund concluded in July, revising its status from “substantially” to “moderately undervalued.”

Similarly, China’s current account surplus — which measures in part how much more money China makes from exports than it spends on imports — has fallen to three percent of gross domestic product, down from 10 percent in 2007. That suggests a stronger renminbi has reduced the trade imbalance between China and its partners.

”I think we should declare victory,” said Nicholas R. Lardy, a senior economist at the Peterson Institute for International Economics. The Carnegie Endowment’s Mr. Dadush asserts that Mr. Romney’s pledge makes “no economic or trade policy sense, given what China has done and given its importance.”

Grant D. Aldonas, Mr. Romney’s trade adviser and a Commerce under secretary for international trade during President George W. Bush’s first term, acknowledges the renminbi’s gains but argues the government recently has been suppressing its value.

The renminbi has indeed weakened one percent against the dollar since February, according to Michael Pettis, a finance professor at Peking University and a senior associate at the Carnegie Endowment. But Mr. Pettis argues that the reason for the renminbi’s fall is capital flight, not government intervention. So many Chinese are taking money out of the country that Beijing is “actually forcing the renminbi up, not down,” he said.

Mr. Romney is threatening to use the Commerce Department’s powers to unilaterally impose tariffs on Chinese products, while the Obama administration’s main tactic against unfair trade practices has been to bring cases before the World Trade Organization. Mr. Romney argues there is no need to hold back because a trade war is already under way. But many economists say the current battles are mere skirmishes, not a real trade war. They warn that unilateral sanctions could trigger Chinese retaliation that would more than offset any economic benefits.

Consider 2009, when the Commerce Department imposed a duty on imports of Chinese tires — a move sought by the United Steelworkers Union and widely criticized by economists and by Mr. Romney as politically motivated. Gary Hufbauer, a trade expert with the Peterson Institute, said the action protected at most 1,200 American jobs but last year alone cost American consumers $1.1 billion in higher-priced tires.

China responded with tariffs on imports of American chicken parts that cost American poultry producers an estimated $1 billion in lost sales. Last month, the Obama administration let the tire tariff quietly expire.

On the military front, Mr. Romney’s aides have said he wants to build up the American military presence to counter China’s influence in the western Pacific. The Obama administration has moved in that direction, expanding an Australian base to 2,500 Marines and stationing four combat ships in Singapore. Mr. Romney has also criticized President Obama’s 2011 decision to sell Taiwan $5.85 billion in military hardware to update its air force instead of approving Taiwan’s request for 66 new and more advanced F-16 fighters. As president, an aide said, Mr. Romney would approve such a request.

“There would be a tough Chinese reaction,” said Bonnie S. Glaser, a senior fellow with the Center for Strategic and International Studies, who described China’s opposition to the sale as an unofficial red line. “The question is how tough.”



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