I write primarily on China, Asia, and nuclear proliferation.
China Dailyattacked Mitt Romney last Monday, on the eve of his nomination as the Republican Party’s presidential candidate. “It requires political vision as well as profound knowledge of Sino-U.S. relations as a whole, to make sensible policy recommendations about what are widely recognized as the most important bilateral ties in the world,” Beijing’s official English-language newspaper stated in an editorial. “Romney apparently lacks both.”
Two days later, the paper issued what was ostensibly a news story but was essentially a criticism of the new candidate’s trade policies, especially his stand on Chinese currency practices. The Republican candidate has famously pledged that on his first day in office he would brand China a currency manipulator.
Actually, Congress gave the job of identifying currency-manipulating countries to the Secretary of the Treasury, who is required to issue a list of such nations twice a year.
Treasury’s last list of manipulators was released in May, and it did not include the country that last year ran up a $295.4 billion merchandise trade surplus against America. As the department noted, the statutory requirements “have not been met with respect to China.”
That statement is debatable. The Omnibus Trade and Competitiveness Act of 1988 requires Treasury to cite countries that “manipulate” the value of their currencies in relation to the dollar and do so “for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.”
The People’s Bank of China, the country’s central bank, intervenes in Chinese currency markets each and every trading day, fixing the value of the renminbi within a tight band against the greenback. Moreover, Chinese leaders have publicly admitted they do so to gain a trade advantage. Take PremierWen Jiabao, the official in charge of the Chinese economy. “If as some American congressmen have demanded, the renminbi were to appreciate by 20 to 40%, there would be countless Chinese enterprises going bankrupt and countless Chinese workers becoming unemployed,” he said in New York in September 2010, responding to charges that his country’s currency was substantially undervalued due to government policies.
China is clearly a manipulator. But what does that mean? On a technical level, the issues are exceedingly complex. For one thing, Chinese leaders have never agreed to float the yuan, as the renminbi is informally known. Although their manipulation is obviously predatory, it probably does not constitute a violation of China’s World Trade Organization commitments. Moreover, U.S. currency legislation, working its way through Congress, might not survive a WTO challenge from Beijing. And the effect of China’s manipulation is hard to quantify, in large part because the nation’s trade advantage is due to many factors.
On a political level, however, currency manipulation is hard to defend, especially in the middle of a heated presidential campaign. Just ask the President. “China has manipulated its currency for years in order to gain an unfair advantage over the United States in trade,” stated Barack Obama in July 2007 as he battled for the presidential nomination of his party. “Unfortunately, the Administration has failed to effectively challenge or change China’s behavior.”
The same can be said of President Obama’s administration. Despite appreciation of the renminbi against the dollar in his first years in office, the currency may be just as undervalued now as when he moved into 1600 Pennsylvania, as a few contend.
In any event, in the second quarter of this year the renminbi fell 0.9% against the greenback. Moreover, Premier Wen, on the 25th of last month, said China would try to export its way out of its current difficulties. Although official media reports did not mention that he talked about cheapening the yuan, statements like this in the past have preceded campaigns to depress the currency.
Enter Peter Navarro. Last month, the famed University of California economist released his highly controversial documentary, Death by China, which makes the case that currency manipulation is one of Beijing’s “weapons of job destruction.”
AFL-CIO President Richard Trumka, filmed with the White House in the background, is featured prominently, as are other labor figures. “Five-and-a-half million manufacturing jobs gone,” he says as he talks about China’s effect on the U.S. economy.
Not everyone would agree with that number—some talk about 2.7 million jobs lost and others think the figure is much lower—but the fact that Trumka talks about the issue is significant. Navarro’s grab-you-by-the-throat documentary has its Ohio premier on the 7th of this month in Youngstown. That’s followed by showings in Cleveland, Akron, Dayton, Portsmouth, Cincinnati, Beavercreek, Columbus, Athens, and Toledo, all bound to attract large blue-collar crowds. The film has openings in other swing states, including Pennsylvania and industrial Michigan.
Beijing, not surprisingly, is helping Navarro by going on the attack against him. That puts the professor, who is not a partisan, in the company of Romney, in the sense that both have become the object of Chinese government displeasure over the same general set of issues.
The risk for President Obama is that Navarro drives home his arguments about currency manipulation in a critical battleground state with the unsolicited help of Beijing’s anti-Romney broadsides and the Republican candidate himself. Navarro, therefore, could change the national conversation on a hot topic on which the President is vulnerable. After all, his administration has little to show for all its behind-the-scenes efforts to persuade the Chinese to float their currency.
China has been largely absent from the campaign. But that will change soon. The election is all about the economy, and the economy is all about jobs. As China and Romney collide, Beijing’s currency practices are bound take center stage in a state with 18 electoral votes up for grabs in an extremely tight race.