In last week’s debate, President Barack Obama turned to Republican Mitt Romney and said, “Governor, you’re the last person who’s going to get tough on China.”
I hope Obama is right.
The tougher-than-thou poses on China have become routine in presidential campaigns, but these threats, if carried out, could hit American consumers with higher prices and spark damaging tit-for-tat responses from Beijing.
Obama, with his ties to organized labor, was always expected to be a reluctant free trader. He’s lived up, or down, to expectations. He took forever to send trade treaties with Colombia, Panama and South Korea to Congress and he brags about Chinese imports he’s whacked with tariffs, such as tires.
In his State of the Union address earlier this year, he claimed the tire tariffs had saved more than 1,000 jobs. If so, it came at a high price: The Peterson Institute for International Economics concluded that last year, Obama’s tariffs probably destroyed more than 2,500 jobs and cost U.S. consumers more than $1 billion in higher prices. The low-end U.S. tire market simply shifted to new suppliers in Mexico and Asia.
Republicans have traditionally been more keen on opening markets, as opposed to bashing imports. But Romney, at least outwardly, sounds as if he plans to depart from that pattern. He promises to label China a currency manipulator on day one, a move that could open the door to a range of tariffs on Chinese exports — likely whacking American consumers with higher prices.
It’s an odd phenomenon in politics that sometimes, concern about a problem seems most intense just as the problem has begun to abate. That seems true of immigration, to cite one example. Pew Research concludes that last year migration from Mexico had probably reached net zero and may now be negative. Yet immigration fears loomed large in the Republican primary debates.
Worries that the Chinese will wreck us economically echo similar concerns about Japan in the 1980s — fears that were still intense just before Japan’s property and stock markets collapsed. Eventually, the Japan-bashing in Washington ceased and the flood of books about the enigmatic Japanese political system dried up.
China may soon be mired in deep problems of its own.
It has overinvested in real estate and infrastructure. Some economists believe its economy is a bubble on the verge of popping.
Thanks in large part to its one-child policy, China’s society is aging rapidly, its workforce is expected to begin shrinking in five years, its labor costs are rising fast — and its trade surplus is plummeting.
China still runs a big surplus with the United States — about $295 billion last year — but not globally. Five years ago its global surplus was about 10 percent of its economy. The International Monetary Fund predicts that by the end of this year, it will be only 2.3 percent — a huge drop in a very short time.
Managing our relationship with China will be one of the toughest challenges facing whoever sits in the Oval Office next year.
Beijing is increasingly prone to playing the most belligerent sort of nationalistic card, as is evident from its bullying behavior in disputes with its neighbors over South China Sea island chains.
Washington has room to be more assertive with Beijing, not only in light of its antagonistic regional behavior but over intellectual piracy, its opaque domestic markets and its export subsidies.
Such matters are best handled via filings with the World Trade Organization, which exists not only to settle such matters but diffuse the dangerous tensions often sparked by trade spats. In any case, Romney would be better advised to shift his emphasis from curbing China’s exports to prying open its domestic markets.