During last week’s presidential debate, the third and final joust between the two candidates before the November election, the broad topic for discussion was the foreign policy of the United States. Among plenty of familiar rhetoric about U.S. greatness and our commitment to promoting liberty abroad, a topic emerged that is dear to this columnist’s heart: US relations with China, and how we ought to deal with the rising Eastern superpower. Both candidates, however, failed to articulate a sensible policy concerning the Central Kingdom, as they competed to outdo each other in coming off as dragon slayers rather than panda huggers. Though Romney proposes a slightly stricter plan against China with his promise to label it a currency manipulator during his first day in office, Obama, not to be outdone, constantly decries Romney’s investment in companies that took jobs from the United States to China. Both, however, are wrong to China-bash.
First, it is necessary to note that Romney does have a legitimate basis for his declaration of Chinese monetary scheming. During the past decade, the Chinese central bank has pursued monetary policy designed to keep the Chinese yuan artificially cheap — that is, the currency has not risen in relative terms to the dollar despite China’s growth and the increased demand for “yellowbacks.” By pegging the yuan to the dollar, China has kept its exports similarly cheap, disadvantaging U.S. businesses competing in similar markets. This is, as Romney rightly points out, an unfair trade practice.
But there are two caveats. The first is that there is a legitimate case to be made that the United States during the financial crisis pursued similar actions itself in the form of quantitative easing. Complicated economics aside, one result of quantitative easing is to expand the monetary base drastically, flooding the exchange market with dollars and thus weakening it. Although the U.S. didn’t specifically peg the dollar to one currency, as the Chinese are accused of doing, the federal government still stands on relatively shaky grounds to accuse another nation of currency manipulation. Moreover, China has begun to let its currency rise more naturally. Since 2007, the yuan has risen more than 18 percent. Evidence suggests that pressure from the United States combined with the need to curb inflation has already affected Chinese policymakers.
What is the harm, then, of officially labeling China a currency manipulator? The official designation of currency manipulator triggers sanctions under current U.S. law; in response, China would most likely implement counter-tariffs, and the ensuing trade war would be detrimental to both countries and the wider global markets. Relations with our second-biggest trading partner and the holder of a substantial portion of U.S. debt would sour. Future cooperation on economic issues — pivotal if the U.S. is to benefit from China’s rise — would be made more difficult by the hard feelings and counter-productive legislation that would come about because of the designation. Mr. Romney should rethink his foreign policy this front.
What about all those jobs going overseas? Why does everything say “Made in China”? Obama is quick to make grandiose claims about reclaiming manufacturing for the United States, bringing jobs back to our shores, etc. But in so doing, he is ignoring some very basic economic principles that have greatly benefited this country. The fact that companies are shipping production to China should not worry the U.S. populace as much as Obama claims it should.
Companies are constantly searching for the cheapest and most efficient way to produce, and the reality is that Chinese supply chains and manufacturing processes remain more integrated and — crucially — cheaper than those in the United States. Moving production to China is a rational economic decision that translates into benefits for the consumer: Because of increased efficiency and lower costs, the products we buy are cheaper than they would be if produced on U.S. soil. All this adds up to more discretionary income, which we can in turn use to buy more products, some of which will inevitably benefit U.S. businesses. Americans are losing jobs, yes, but these jobs are sacrificed on the altar of greater economic efficiency, which benefits the entire U.S. populace, even those who are out of work. It is global markets at work. Why impede this with protectionist measures?
There are certainly ways the United States should put pressure on China to deal fairly, especially when it comes to copyright laws. But both candidates are making the mistake of competing to appear tough on a nation that will help to shape the future of the United States more than any other in the coming decades. If we want a mutually prosperous future, we should do so without resorting to the name-calling and defensive reactionism currently fashionable in the political arena.
Russell Bogue is a Viewpoint writer.
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