As the Republican primary turns vicious, Mitt Romney is mobilizing his pro-business credentials by attacking his rival, Rick Santorum, for his "unapologetic defense of big labor'' and framing himself as the true fiscal conservative. At first, there might seem to be little ground for doubting Mr. Romney's business credentials. Although he certainly had a privileged upbringing, Mr. Romney also has a claim to being a business success in his own right that none of his rivals can match. Yet on the first day of his presidency, Mitt Romney wants to issue an executive order that "[d]irects the Department of the Treasury to list China as a currency manipulator in its biannual report and directs the Department of Commerce to assess countervailing duties on Chinese imports if China does not quickly move to float its currency." This shows exceptionally poor business sense and despite having endorsed Mr. Romney, Jon Huntsman (who speaks Mandarin and was the U.S. ambassador to China) has criticized his China policy. There are several reasons that Mr. Romney's nascent trade policy shows extremely poor judgement.
First and foremost, China's currency is no longer clearly undervalued and has been appreciating against the dollar since the summer of 2010. While the rhetoric might sound as good as it ever did to those looking for work, it is simply out of date. Attacking China when it is already moving in the right direction is an excellent way to undermine the ability of the U.S. to influence China in the future.
Second, the report is supposed to be the purview of the Secretary of the Treasury who "...shall analyze on an annual basis the exchange rate policies of foreign countries, in consultation with the International Monetary Fund, and consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade." Ordering the Secretary of the Treasury to produce certain findings reeks of the Bush era triumph of politics over reality.
Third, what a good businessman should understand is that trade is not a zero-sum game and that the economies of China and the U.S. are more complementary than competitive. An American company, Apple, has become the most valuable in the world in large part thanks to the incredible savings that resulted from manufacturing in China. The U.S. gained a number of good jobs designing, marketing and servicing Apple products. If anyone lost out it was Japanese and Korean makers of consumer electronics. Tariffs on Chinese manufacturing would hurt Apple and U.S. consumers (who would have to pay more for everything from iPods to tube socks) -- but would create few new American jobs because the manufacture of these devices would probably move to still lower cost countries like Vietnam. Evidence of how little exchange rates affect U.S.-China trade can be seen from the fact that the trade deficit has continued to climb even as the Yuan has increased in value.
Perhaps Mr. Romney's attitude results from a "barbarians at the gate" mentality that is often associated with private equity. This may well have been at the heart of Mr. Romney and Bain Capital's success and could probably be justified as an important part of Schumpeterian capitalism. But this is no way to run a nation and certainly not a responsible global power. The goal of the leader of the world's superpower, especially a leader and superpower that are supposed to believe in the free market, should be to set up a free and fair global playing field, not to throw around its weight anytime it does not get its way. Competition is the hallmark of a successful market, but cooperation needs to be the watchword for a global system. Indeed, the kind of tariff proposed would likely violate the rules of the WTO, an unworthy action that the U.S. should not be modelling for China.
Some might argue that Mr. Romney does not really intend to match his words with deeds and that he has little, if any, ideological conviction behind this or many of his policies. That likelihood should raise its own set of concerns. All presidential candidates make promises they cannot keep and must do some pandering. President Obama had promised to close the prison at Guantanamo and George H. W. Bush promised not to raise taxes. But, surely, they believed these promises to be worthy goals, even if they proved unwilling or unable achieve them. The country could certainly use a large dose of pragmatism and centrism, but threatening to brand China as a currency manipulator is neither. It is instead the worst kind of populist pandering -- stoking fears and increasing the chance of conflict. If Mr. Romney's threats are idle then they will undermine U.S. credibility, stoke fears and misconceptions, and make cooperation more difficult. If they are not, they risk starting a trade war that is unnecessary, probably unwinnable, and one the world economy can ill afford.
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