Huffpost Politics

Mitt Romney Wasn't Always Tough On China

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MITT ROMNEY CHINA
AP



By Rachelle Younglai

WASHINGTON, June 13 (Reuters) - Mitt Romney may be down on China and threatening to declare Beijing a currency manipulator from day one if he is elected U.S. president, but his past dealings with the country show he was not always so hostile.

From his early days at private equity firm Bain Capital to his time as Massachusetts governor, Romney welcomed investments from China, and bought and expanded companies that benefited from its low labor costs and controlled currency. As chairman of the 2002 Winter Olympics, he also said Beijing should not be punished for human rights abuses.

All this is in sharp contrast to the Republican presidential candidate's current line of attack on the world's second-largest economy, which is now the United States' most important trading partner and largest foreign creditor. And that makes political strategists, China experts and business leaders wonder whether Romney will really follow through on his campaign promises if he is elected.

So far in his campaign, Romney has accused China of cheating Americans out of jobs and said a country that represses its own people cannot be a trusted partner.

He has also promised to label China a manipulator of the yuan. On the surface, that would just be a symbolic gesture because it only requires Washington to start talking to Beijing about adjusting its currency.

But Beijing could easily see it as threatening enough to trigger major trade tensions and reduce the chances of Chinese cooperation over international issues, business executives, analysts and former U.S. government officials said.

Kenneth Lieberthal, who advised the Clinton administration on Asia, said Romney would end up taking a softer approach if he gets into the White House.

"Why walk into office and immediately alienate the folks you are going to be dealing with?" said Lieberthal, who is now director of the John Thornton China Center at the Brookings Institution think tank. "You start off by slapping them in the face and then say: 'Let's get to know each other?' It's just not the way the real world works. It may sound great as a campaign slogan ... but it doesn't work as real policy."

HAPPIER DAYS

The heated campaign rhetoric does not mesh with a review of Romney's actions and remarks when he was governor, in charge of the Olympics or running Bain Capital.

The Romney campaign said he had been consistent about his position on China. He is a strong supporter of free trade, including free trade with China, the campaign said.

"Governor Romney has repeatedly discussed the need to confront China over its unfair trade practices," said Romney spokesman Ryan Williams. "Unlike President Obama, who promised to take China 'to the mat,' but has instead been treated like a doormat, Governor Romney understands the importance of this issue to the international trading system and the American economy."

(The White House has denied it is soft on China.)

Bain, the private equity firm Romney founded in 1984 and ran through 1999, invested in companies that have, like many U.S. corporations, taken advantage of cheaper Chinese manufacturing costs while also investing in the country to tap rapidly growing consumption there.

Romney and his campaign have often talked about how three companies that Bain invested in during this period - the Staples Inc, Sports Authority Inc and Domino's Pizza Inc chains - have gone on to create more than 100,000 jobs combined.

What he does not discuss is the role China is playing in these businesses. For example, of 80 items randomly chosen in a Sports Authority store in Washington, D.C., earlier this month, about two-thirds were Chinese produced - including tennis balls, bikes and boxing gloves.

At a Staples outlet in New York, the figure was more like 40 percent, including staplers, glue and rulers. The percentage may be bigger on a sales basis because a lot of the higher-priced goods, like computers and other electronic gear, come from China.

To be sure, it is not clear how much China-sourcing the companies did when Romney was at Bain. Staples and Sports Authority had no comment.

There is nothing unusual about U.S. retailers getting their wares made in China; the biggest, including Wal-Mart Stores Inc , do so.

But if China revalues its currency, companies like Staples would face higher costs and might have to raise prices. The retailer might also look for cheaper alternatives - it already produces a significant number of products in countries such as Mexico and Egypt.

A stronger yuan could increase dollar revenues from China for companies like Domino's, which sells there, but any major trade tensions with Beijing could hold back the expansion of U.S. companies in the country.

Staples now operates in Beijing, Shanghai, Shenzhen and Guangzhou.

Domino's had three stores in China by the time Romney left the private equity firm. Now there are 13, and Shanghai-based Dash Brands recently signed a deal to become a master franchisee for Domino's Pizza in China. Domino's had no comment on Romney, but characterized its experience with Bain as very positive.

Other Bain investments also have China connections.

For example, in 1996, Bain invested $2.1 million in customized doll maker Lifelike Co, which had operations in the United States and Hong Kong, according to "The Real Romney," a 2012 biography of the candidate by Boston Globe reporters Michael Kranish and Scott Helman. The book said Lifelike filed for bankruptcy in 2004. It was not immediately clear if the company manufactured in mainland China.

In 1997, Bain invested $8.36 million in Midwest of Cannon Falls, a company that sells novelties such as holiday ornaments to small retailers. Former Midwest Chief Executive Officer Kathleen Brekken told Reuters that at the time, most of the company's products were made in China, but she declined to comment on Romney or Bain.

In his own words, Romney has supported China in the past.

Recalling a visit to a factory there in 1998, Romney praised the Chinese work ethic. "They cared about their jobs," he told a forum on the future of U.S. cities that year. "They wouldn't even look up as we walked by."

Skeptics in both Washington policy circles and the business community see Romney's current rhetoric as designed to play on the fears of economically frustrated Americans, who worry that China has been stealing jobs from the United States.

However, a look at Romney's tenure as Massachusetts governor between 2003 and 2007 also suggests that he may be more measured towards China if he becomes president.

Romney welcomed Chinese Premier Wen Jiabao to Boston's port in 2003 and boosted Massachusetts' exports to China by 235 percent, according to state figures. The governor also praised the role of Beijing-controlled China Ocean Shipping Co in building the trade relationship.

When Romney was chairman of Salt Lake City's 2002 Winter Olympics and Beijing was vying for the 2008 summer games, he said he was against denying China an opportunity to host the event because of the nation's human rights abuses.

"They have practices, as reported in the media, that violate my sense of human rights, but we should not build walls even if we vehemently disagree with many of their practices," Romney said at a 2001 news conference, according to the Chicago Tribune. "Building bridges increases the possibility for spreading the ideas of civil societies."


BUSINESSES WORRIED

The saber-rattling from Romney has worried business executives. Behind closed doors, some grumble that he is wasting political capital on the currency question when there are bigger problems to resolve with China, such as access to its financial markets and protecting U.S. companies' intellectual property.

"Given his background, many of us had assumed he would take a broader view," said Erin Ennis, vice president of the U.S.-China Business Council, which represents about 250 companies that do business with China, including Dow Chemical Co , Ford Motor Co and Apple Inc.

Thomas Donohue, president of America's largest business lobby, the U.S. Chamber of Commerce, said the yuan's rise in recent years had taken away the case for declaring China a currency manipulator. "You can't make that argument anymore," he said in April.

The yuan has appreciated nearly 30 percent since China broke its peg to the U.S. dollar in 2005. When adjusted for inflation, it is up about 40 percent against the greenback, and China labor and other manufacturing costs have climbed.

Talks between Washington and Beijing about adjusting the yuan's value are already under way and have shown some progress.

But still, Romney's declaration of China as a currency manipulator would carry risks. If the United States' third-largest export market feels it is being unfairly targeted, it could fight back with more than just words.

In 2009, when the Obama administration imposed tariffs on low-end tires from China, Beijing immediately launched a formal anti-dumping probe of American exports of chicken and auto parts.

The World Trade Organization has since ruled that the United States is entitled to impose the extra duties on Chinese tires. The two countries are still fighting over the chicken parts, and new disputes have arisen over solar panels, wind turbine towers and rare earths.

With the world's two largest economies tightly intertwined and Washington increasingly seeking Beijing's help on diplomatic issues, the fear is that China could not only slow the appreciation of the yuan but also retaliate in other areas important to the United States, such as U.S. farm exports and Western sanctions against Iran.

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