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In US, Every Four Years, Much Ado Over China

Railing against China’s trade policies has long been campaign fodder in US elections, and a visit this week by China’s presumptive incoming president could turn up the volume. It’s an old pattern, observes trade expert Edward Gresser. The party out of power may rail against unfair trade practices – but once in office, US presidents quickly discover that campaign promises on China are tough to keep. Perhaps most famously, Ronald Reagan promised official relations with Taiwan after Jimmy Carter’s normalized diplomatic relations with China in 1979. Republican candidate Mitt Romney has proposed going beyond labeling China as currency manipulator, promising “countervailing duties” on Chinese products if the yuan’s value is not raised. He also offered other suggestions, echoing steps the Obama administration had already taken. Americans can gripe about China, but the hands of US presidents are tied. Besides, US consumers make trade decisions every day, and time and time again, they show appreciation for the bargains that come from China. – YaleGlobal

In US, Every Four Years, Much Ado Over China

US presidential candidates rail about China’s unfair trade practices – then backtrack once in power
Edward Gresser
YaleGlobal, 15 February 2012
China syndrome: President Barrack Obama  with China’s President Hu Jintao (top); Republican candidate Mitt Romney outlines how to sanction China for unfair trade practices

WASHINGTON:  To paraphrase English poet P.B. Shelley – If election season comes to the US, can complaints about China be far behind? 

It’s a familiar pattern in the US: The party out of power runs against the China relationship, with an administration in power playing defense, making the best of an imperfect situation. China’s presumptive next president, Xi Jinping, who begins a visit to the US this week, can take home firsthand impressions of this US dynamic.  Whichever side wins, after the inaugural, US policy remains essentially the same. Most dramatically, Ronald Reagan promised official relations with Taiwan after Jimmy Carter’s normalization of diplomatic relations with mainland China in 1979, and Bill Clinton proposed linking most-favored-nation tariffs to human rights in 1992. Once in office, both presidents concluded that the big changes they had advocated would likely do more harm than good. 

Mitt Romney, the likely Republican challenger to President Barack Obama, proposes a similar big shift in trade policy. Should Romney win, could this be the year a long-sparking fuse ignites? Probably not.

The China relationship for US presidents is a predictable challenges. The two countries are world powers with different views of world order. Both are deeply involved in Asia’s two “frozen conflicts” in the Taiwan Strait and the Korean Peninsula in ways that in unlikely, but well-understood circumstances could bring them into confrontation. The economic relationship is gigantic and often stressful. Such characteristics have long made the relationship a focus for debate and target for criticism.  Interestingly for a Republican candidate, Romney has chosen trade and international economics rather than human rights or military affairs as the focus for his challenge. Here’s just part of his list of Chinese abuses, drawn from his campaign economic blueprint under a section headlined “Confronting China”

    On many occasions Chinese companies, have simply reverse-engineered American products, with no regard for the patents and other protections of intellectual property rights that are crucial to our own economic well-being. The Chinese government facilitates this behavior by forcing American companies to share proprietary technology as a condition of their doing business in China. A recent study by the U.S. Chamber of Commerce reports that international technology companies consider these practices to be ‘a blueprint for technology theft on a scale that the world has never seen before.’ China’s unfair trade practices extend to the country’s manipulation of its currency to reduce the price of its products relative to those of competing nations such as ours.

US presidents discover
that the big changes they had advocated on China would do more harm than good.

After castigating  the Obama administration, Romney’s plan makes a series of hawkish-sounding, but actually modest promises – more trade cases at the World Trade Organization, intense border inspections, encouragement of China joining the World Trade Organization’s Government Procurement Agreement, and so on. 

The plan does, however, include one very ambitious promise of the sort Reagan and Clinton rethought in 1981 and 1993. This is to go beyond citing China as a “currency manipulator” to impose “countervailing duties” on Chinese products should China not quickly raise the value of the yuan. Romney doesn’t say how high these duties would be, but even a modest extra 10 percent would be a whopping $40 billion – much larger than today’s entire $29 billion US tariff system – in taxation of phones, computers, clothes, shoes, and other home goods.

Romney’s displeasure is likely to find an audience, as America’s economic relationship with China offers much to complain about. Longstanding unhappiness over currency values, import pressures and intellectual property piracy have chilled the business mood. These complaints have been joined more recently by a report from the National Counterintelligence Executive, a White House intelligence office, suggesting directed cyber-attacks from China, designed to extract the intellectual property of companies – a more sinister development than anything described in Romney’s litany of complaints As the US ambassador to the WTO has noted, China has also apparently developed a pattern of using “dumping” tariffs against foreign countries as retaliatory measures, a policy outside WTO rules. 

Romney’s displeasure will likely find an audience – America’s economic relationship with China offers much to complain about.

For the most part, the public shares business’ frustration. Asked in the 2010 public opinion survey done by the Chicago Council on Global Affairs, whether China practices “fair trade,” for example, only 29 percent of Americans agree, as opposed to 81 percent for Canada, 68 percent for the European Union, 58 percent for Japan and 41 percent for Mexico. Perhaps more important, 53 percent viewed China’s economic growth as negative for the United States.

But apart from the big tariff proposal, the administration offers pretty good answers to Romney’s ideas – it in fact implemented many of them well before Romney’s booklet came out last year. The Obama administration has filed five WTO cases against China over the past three years, on topics ranging from wind-power subsidies to chicken tariffs, electronic payment systems and rare earths; border inspections have been bolstered; and the US added its controversial 2010 tariffs on Chinese automobile tires. Obama’s forceful claim of credit for this set of programs in the State of the Union address – along with a new White House trade-enforcement center – is at least as credible as Romney’s argument for his own policy.

Further reason to be skeptical comes from the brighter side of the China relationship. China has become a big buyer as well as a big seller. Since the financial crisis, America’s main economic success story has been a $500 billion surge in exports of manufactured goods and farm products, with a $50 billion jump in sales to the consumers and businesses of China and Hong Kong a significant part.  As real estate and finance have struggled since the crisis, manufacturing and agriculture have grown, providing a lift to the economy as a whole. China’s appetite for metals, cement, rubber and energy has also had more subtle effects – by raising global prices in resource industries, it’s created a commodity boom in South America, which in turn buys all the American agriculture and mining machinery it can find.

From the brighter
side of the China relationship for the US: China has become a big buyer as well as a big seller.

The same survey that found Americans unhappy about China as a trading partner also found 68 percent of the public preferring to “undertake friendly cooperation and engagement with China” and only 28 percent wanting to “actively work to limit the growth of Chinese power.”  Despite frustrations over trade issues, in practical terms, no viable campaign to avoid Chinese goods has ever caught on with American shoppers. The public seems to consider China a difficult trader, less fair than America’s other big trading partners, well worth the hawkish positions on enforcement of agreements that the Obama administration and the Romney campaign have taken up. But American shoppers also appreciate affordable goods in malls and are uneasy about new international confrontations.

Despite the difficulties of the economic relationship with China, the bedrock issues that kept US-China policy stable in earlier periods of stress remain in place today. The two countries are the world’s biggest economies and – at least potentially in the Chinese case – largest military powers. Both governments, well aware of the potential for conflict, will likely continue to view such conflict as disastrous. 

Today as since the 1970s, then, US-China policy is probably operating within a relatively narrow band of choices. Changing it at the margins is constant; changing its fundamentals in security or trade has always proven more challenging than critics assume.  That was true for Reagan in 1981, Clinton in 1993, and however hot the electoral rhetoric becomes in 2012, likely true for 2013 as well.  

 

 

Edward Gresser is the director of ProgressiveEconomy, a trade and global-economy think-tank housed at the GlobalWorks Foundation in Washington, DC.

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