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The U.S., China, and the Presidential Election

Friday, November 2, 2012

Anyone who’s been paying attention to the presidential debates these past few weeks or at least to the rhetoric flying around the newspapers knows that China has been a hot issue in the upcoming presidential election. 
 

 
Both sides have engaged in increasingly harsh rhetoric about how they’ll handle China when they’re president.  This is due in large degree to the fact that there are a lot of voters who are worried about American jobs moving overseas, the amount of U.S. debt held by China, and the U.S.-China trade deficit. Romney says one of the first things he’ll do with his term is to label China a currency manipulator, something the Obama administration has not done, and claims Obama has a record of being too soft on China. (Check out this Romney campaign ad attacking Obama on China.) Obama in turn defends his administration’s rate of bringing trade cases against China and attacks Romney for his record of making wealth off doing business with Chinese companies during his time with Bain Capital (shown in the Obama campaign’s response to the Romney ad above.) However, there are several crucial points that voters might miss if they’re only watching the campaign ads:
 
1.) What are the real differences between Obama and Romney’s positions on China? Who is being dishonest (or at the very least misleading)?
 
Short answer: not as much as you might think, and both of them. 
 
Long answer: Despite the antagonistic language toward one another on the campaign trail, Obama and Romney are sometimes quite similar when it comes to actual policies towards China.  Both Obama and Romney pledge to be more aggressive in enforcing trade deals with other countries -- especially China -- the two candidates also vigorously defend high-profile agreements that send U.S. manufacturing jobs overseas
.  Unsurprisingly, they are also both guilty of misconstruing the facts in order to garner votes. According to Time: “Both sides’ attacks are misleading — and, like so much campaign rhetoric, drastically oversimplified.” When it comes to Romney’s attacks, U.S. exports to China have actually boomed during the Obama administration, and the President has done more than past presidents to protect U.S. trade interests, including imposing tariffs on Chinese solar panels and tires. The attacks on Romney’s China record don’t hold up either. Romney wasn’t actively running Bain when it invested in companies that outsourced jobs, and while Romney likely profited from such investments anyway, Bain was neither the only firm engaging in the practice nor the first
.
 
 
2.) What are the facts of the relationship between China and U.S. economic woes?
 
Short answer: There are links that exist, but the situation is being drastically oversimplified in the campaign.
 
Long answer: The trade deficit with China has indeed had an impact on the U.S. economy.  According to this recent report from the Economic Policy Institute 
“Growing U.S. trade deficit with China cost more than 2.7 million jobs between 2001 and 2011, with job losses in every state.”
On the other hand, one must remember that China is currently the U.S.’ fourth largest trading partner, and the two are inextricably economically linked. Thus, it is in the U.S.’ best interest for the Chinese economy to continue to flourish. As the Washington Postputs it: “China and the United States are the twin engines of global growth, and both need each other to take steps to keep economic activity going.” It’s this latter part that you won’t see coming up in the campaign ads.
 
3.) What exactly happens if China is labeled a currency manipulator?
 
Short answer: Just labeling China a currency manipulator might not actually have much effect.  However, if that translates into corresponding legislation it could trigger a trade war.  (It’s worth noting that this is something that Romney said back in February to the Wall Street Journal is “the last thing I want
.”) 
 
Long answer: Labeling China a currency manipulator would really just mean that the Treasury Department would have to negotiate with China over the price of its currency, something they’ve already been doing for some time. However, if corresponding legislation such as tariffs are put in place, the situation could escalate into a trade war. A trade war would lead to falling American exports to China and more expensive Chinese imports. According to a recent Brookings analysis: “In the worst case, a Romney decision to go to the brink with Beijing on the value of its currency would result in a mutually damaging trade war that slowed economic growth and increased unemployment in both countries and caused inflation and higher interest rates in the United States.” 
 
 
4.) What effect is all this anti-China rhetoric having on Sino-U.S. bilateral relations? In other words, how is China perceiving this?
 
Short answer: Unsurprisingly, China is not too happy with all this. 
 
Long answer:  In response to the Romney ad earlier in this post Chinese state media said: it’s “ironic that a considerable portion of this China-battering politician’s wealth was actually obtained by doing business with Chinese companies before he entered politics
.”  But will this actually translate into any sort of action?  According to the same Chinese state media source if Romney’s “mud-slinging tactics were to become U.S. government policies, a trade war would be very likely to break out between the world’s top two economies, which would be catastrophic enough to both sides and the already groaning global economy.” Now we’re back to the consequences of a trade war listed above.  However, if the rhetoric remains just that and does not translate into policy, leaving us to speculate whether whoever takes office will actually act as harshly with China as they say they will on the campaign trail.
 
The way I see it there’s a serious chicken and the egg problem with public opinion going on when it comes to China in this campaign.  The American public is worried about China’s rise (more worried than the experts according to this really fascinating Pew poll), so the candidates act tough on China to garner votes, spouting oversimplified sloganeering rhetoric, making the public even more worried about China, etc., etc.  I can only hope that once the election is over this vicious cycle will be broken, and our national politicians will no longer have an incentive to so mislead their constituencies on the China threat.   The question then becomes, will the worry they’ve stirred up during the campaign impact the foreign policy that follows?  Will the extent to which misleading campaign rhetoric has amplified American fears about China’s rise then constrain whoever becomes president such that they cannot but pursue a very aggressive foreign policy towards China?  Given that the Pew poll analysis predicts the experts counseling the President will advocate a less hawkish plan of action, I am skeptical.  However, as always I am open to discussion of different points of view.

 

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