Practical Economics


Getting Tough with China

Art Pine

It's an election year, and once again the candidates' fancies have turned to bashing China. But will the victor be able to follow through?



Beijing ought to be discounting the tough-on-China rhetoric in the U.S. The odds are that none of the candidates would carry out such a policy if elected president. Listen to the current round of presidential hopefuls, and you'd think the U.S. were positioning itself to get tough with China over its much-criticized trade practices -- right after the November election.

SEE ALSO: Congress Picks Wrong Fight with China

Republican front-runner Mitt Romney has accused Beijing of cheating, and has vowed that if he becomes president, he'll immediately declare China a "currency manipulator" -- a move that would pave the way for U.S. imposition of offsetting duties, tariffs, sanctions and other restrictions on a bevy of Chinese goods. "I'll clamp down on [a] China that's been cheating," the former Massachusetts governor pledged in a stump speech earlier this month. "They've been stealing our intellectual property, our designs, our patents, our know-how, our brands; they've been hacking into our computers. That has got to stop."

Other Republican candidates have embraced similarly tough-sounding rhetoric. Only former Utah Gov. Jon Huntsman, a Republican who served as President Obama's ambassador to China before launching his presidential bid, has eschewed the hard-line approach, calling it dangerous and counterproductive. And his campaign is going nowhere.

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But those who expect the next U.S. president to crack down on Beijing on economic issues are probably in for a disappointment. Once a candidate becomes president, he quickly realizes how limited his options are -- and the consequences he risks if he carries out his campaign threats.

Both Democrat Bill Clinton and Republican George W. Bush engaged in similar posturing against China before they took office. And both stowed their boxing gloves within a few months of being sworn in. In fact, each ended up going out of his way to bring China further into the global economic and trading system.

Candidate Clinton lambasted China in 1992, accusing incumbent George H.W. Bush of coddling dictators in Beijing and refusing to grant China special trade preferences. But Clinton reversed course in 1994 at the urging of U.S. business, declaring China to be a "strategic partner" and backing its accession to the World Trade Organization (WTO).

Eight years later, Bush's son, George W., went through a similar turnabout, charging during the campaign that Clinton had "made a mistake" in designating China a strategic partner, and calling for a tougher policy that would put Beijing on notice about trade and geopolitical issues. "We need to be tough and firm," he said. The younger Bush changed his tune after the Sept. 11, 2001, terrorist attacks, when he concluded that he needed China's support for the newly declared war on terrorism. He later began high-level, broad-scale talks with Chinese officials and cleared a path for China to become part of the Group of 20, which sets global economic strategy.

The reasons for both turnabouts are simple: Though it's easy for politicians to harrumph about China's trade practices, it's hard to punish that country without risking punishing the U.S. more. China is huge, and if it retaliated, it would hurt a broad swath of consumer and business interests.

Moreover, America has far more at stake in dealing with China than just a narrow-interest trade spat. If the next president wants to speed up America's economic recovery by spurring more U.S. exports, China is likely to be the major engine of growth for the global economy. And U.S. military and geopolitical concerns in Asia aren't likely to be eased if Beijing feels under siege on trade issues.

Although China has shown that it's willing to abide by WTO decisions, it also has been quick to retaliate against the imposition of new U.S. trade restrictions -- often before the WTO actually rules. Such tit-for-tat skirmishes can quickly escalate into trade wars in which both sides have a lot to lose.

While Republican candidates have been calling for a tougher China policy, Obama has been hardening his own rhetoric. In recent months, he has sent several high-visibility trade cases to the WTO and has personally urged Beijing to change its China-first trade practices, though he has stopped just short of branding China a currency manipulator. Obama has also adopted a tougher posture on geopolitical and military issues: He has warned China against bullying its neighbors in the South China Sea; openly declared that the U.S. will maintain its presence in Asia indefinitely; and reoriented U.S. military strategy to back up that statement, including basing a small contingent of U.S. Marines in Australia.

Even so, much of what Obama has done so far amounts to little more than words, aimed at positioning him to the right of Romney on the China question. The president's new defense plan contains no new funding for additional warships to help bolster the U.S.' presence in Asia, and the Marine unit bound for Australia is symbolic, nothing more.

As for Romney, the day he delivered his get-tough-with-China remarks, David Greenspon, a businessman who hosted the candidate's campaign appearance at an Iowa factory, later assured fellow businessmen that Romney's strident rhetoric was just talk.

In fact, whichever candidate wins the November election will probably wind up warding off protectionism in Congress in 2013. If the U.S. jobless rate remains high and the political parties remain deadlocked, lawmakers may be champing at the bit to pass punitive legislation. Bashing China is always an easy shot. Congress already seems wrought up over China's refusal to let its currency appreciate more sharply against the U.S. dollar, which theoretically would make Chinese goods more expensive here and give American exports to China a boost.

Though it seems simple, the currency issue is a lot more complex. When U.S. companies export to China, they compete with Europe and Japan , so it's the euro and the yen that determine U.S. competitiveness in China, not the yuan. And forcing the yuan higher won't bring back "lost" jobs. For the most part, low-wage factories are leaving China for Vietnam, not for the U.S.

To be sure, there are many important trade issues on which a new administration could focus and potentially win positive results. But practice has shown that Beijing is far more willing to consider meeting U.S. trade complaints if they're lodged quietly, in private, rather than in a public campaign that makes China look as though it's knuckling under. As Greenspon puts it: “You don't push China. If you push China, you've got a problem." That's what Clinton and Bush found out.



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