Up until the final presidential debate in Florida Monday night, Republican presidential candidate and former Massachusetts Gov. Mitt Romney’s words about China had been almost universally hostile.
He repeatedly called China a “cheater” on the stump, warned that Beijing could be harboring ambitions of “building a global alliance of authoritarian states,” and opined that “a China that is a prosperous tyranny will increasingly pose problems for us, for its neighbors, and for the entire world.” He offered a distinctly zero-sum view of the relationship, suggesting this century would have to be either American or Chinese. Aaron Friedberg, one of his chief Asia advisors, wrote, “Given the repressive and secretive character of the current regime, it is important to be realistic in our expectations about what can be achieved. China’s rulers are determined to retain their exclusive grip on political power.”
But in Monday night’s debate, Gov. Romney changed his tune entirely. On the stage with President Barack Obama, he asserted that the United States can be a “partner” with China and that “we don’t have to be an adversary in any way, shape or form.” He added that “we can work with them, we can collaborate with them, if they’re willing to be responsible.”
Of course it’s better late than never to realize that the U.S. relationship with China has both cooperative and competitive elements. But it still leaves us wondering who the real Mitt is.
Unfortunately, Gov. Romney is hanging on to his former China hawkishness in one very ill-advised way. Once again during the final debate, Gov. Romney vowed, “on day one I will label [China] a currency manipulator.”
Three Treasury secretaries under President George W. Bush refrained from taking this action, as has the Obama administration—no shrinking violets when it comes to taking the Chinese to task. Members of Gov. Romney’s own party, policy experts, U.S. business interests, and media analysts have all given a thumbs down to Romney’s idea, as we detail below.
Republicans and conservatives
Sen. Marco Rubio (R-FL) claimed, “I believe that a trade war is not the right way to approach it, and I think that if you label them a currency manipulator, that’s what it may result in. It will hurt American businesses.”
Another prominent Republican, Ambassador Jon Huntsman, claimed, “What he is calling for would lead to a trade war. It makes for easy talk and a nice applause line but it’s far different from the reality in the U.S.-China relationship.”
Ted Bromund, senior research fellow at the Heritage Foundation, also disputed Romney’s enthusiasm for the label of currency manipulator, “when in reality [currency manipulation’s] contribution to China’s trade surplus with the US is non-existent.”
Arvind Subramanian of the Peterson Institute of International Economics described of the label, “The economic credibility of that action would be pretty thin. Moreover, it would be blatantly provocative at a time when the new leadership was getting in place in China, and the new administration as well.”
Doug Guthrie, dean of the George Washington University School of Business, wrote in Forbes, “As a smart and savvy international business leader, he must know what he’s saying is misleading if not outright false.”
Kenneth Lieberthal from the Brookings Institution argued in Foreign Policy magazine:
Romney’s one serious mistake was in reiterating his determination to declare China a “currency manipulator on Day 1.” This is a campaign position that makes no sense. First, the governor is 4-5 years too late — at 2.1 percent of GDP for the first half of 2012, China’s current account surplus is well below the 4 percent level that the United States argues should be the global standard for what is troubling. Second, dozens of countries, including Switzerland and Israel, use government action to influence the value of their currency — but the United States has never declared any of them to be a “currency manipulator.” Third, the designation is gratuitous. All it would mandate is that the United States engage in intensive negotiations with China on its currency policy, something America has done for years. This designation does not increase the president’s authority to impose tariffs. Fourth, contrary to the governor’s assertion, China’s incoming new leader, Xi Jinping, will feel compelled to take strong countermeasures if Romney approves this designation. Xi will feel he must show Romney that this is a very bad way to elicit Chinese cooperation; he also must show his own countrymen that he will not begin his term by caving in to U.S. bullying. The risk of a trade war developing out of this gratuitous action is thus very real. By any reasonable cost-benefit calculation, “designating China a currency manipulator on Day 1” is a big loser.
And Paul Krugman, New York Times columnist and winner of the Nobel Prize in economics, wrote, “this is an issue whose time has passed,” and described the label as “bluster aimed at making voters think you’re tough.”
U.S. business interests
The U.S. Chamber of Commerce officially opposes the Romney pledge. COO and Executive Vice President David Chavern claimed in September, “Picking fights with trading partners probably isn’t the best way to have expansion of the global trading system.”
Maurice “Hank” Greenberg, former chairman of AIG, also believed that Gov. Romney would reverse this position. He claimed, “Do you want China to be an enemy or a friend? We have a choice between a trade agreement or a trade war. I choose a trade agreement, and I hope that we will.”
Colin Moreshead, contributor to Business Insider, wrote:
Perhaps his most unequivocal statement of the evening was his pledge to label China a currency manipulator on his first day in office — an act he claims is long overdue. The governor’s foreign policy advisors do not seem concerned with the possibility that striking back at a Chinese economy already in slowdown could have severe ramifications for the United States, and Europe in particular.
Stephen Roach, senior fellow at Yale University and former chairman of Morgan Stanley, blasted Gov. Romney’s declaration toward China in Financial Times, warning: “Bad dreams can – and have – become reality.” Roach projects in detail how U.S.-China relations would proceed from “day one”: Negotiations would stall and eventually fail; the United States would impose immediate 20 percent tariffs on Chinese goods, and Beijing would see the move as economic warfare. This would result in stagflation, serious pressure on the stock market, a plunge in the value of the dollar, and staggering unemployment by the fall of 2013.
By that time in the projection, he describes, “As the global economy slipped back into recession, the Great Crisis of 2008-09 suddenly looked like child’s play. Globalisation itself hung in the balance.”
TIME magazine correspondent Michael Schuman calls the currency manipulator label “the most misguided statement on China” from either presidential candidate. He explains:
Sticking such a tag on China will very likely cause Beijing to retaliate with measures aimed at keeping American goods out of the hands of increasingly wealthy Chinese consumers — something U.S. companies, suffering from feeble economic growth at home and in other markets, can’t afford to have happen right now. If the “manipulator” label ends up resulting in punitive tariffs on Chinese goods imported into the U.S., the prices of those goods will increase for American consumers, further straining the wallets of a workforce already strained by debt and joblessness. Suppressed consumption in the U.S. won’t do any good for American retailers or the many U.S. companies that manufacture their products in China for sale at home.
A Wall Street Journal editorial criticized Romney even further:
Most disappointing was his continuing insistence that he will label China “a currency manipulator” on day one so he can then levy tariffs. If he does do that on day one, what then? Does he think China won’t respond in kind? Or perhaps he thinks the two countries can default to negotiations that will end with a whimper. But having promised voters so forthrightly and so often that he’ll get tough with China, he might find that some voters feel betrayed. This is all bad enough as trade and monetary economics, but Mr. Romney may also be backing himself into a political corner.
And last but not least, a Washington Post editorial claimed that “when Mr. Romney promises to declare China a currency manipulator, he is pledging to escalate a battle that the Obama administration is fighting reasonably well, if less dramatically.”
Gov. Romney has changed so many of his stances since winning the Republican primary that it is quite a triumph of politics over substance that he has chosen to stick with the one policy idea that has been so thoroughly discredited. Either Gov. Romney is being insincere when he says he wants “a great relationship” with China or he is being insincere in affirming that he will carry out this pledge (as our colleague Adam Hersh suspects). Either way, it’s not smart foreign policy.
Nina Hachigian is a Senior Fellow at the Center for American Progress Action Fund. Kimberly Aagaard is an intern with the National Security and International Policy team at the Action Fund.