Mitt Romney is blasting China on the campaign trail as a trade cheat and a thief of American ideas and technology. He has pledged that if he’s elected president, one of his first acts would be to label the country a currency manipulator. It’s a theme the Republican nominee hopes will play well in Midwestern industrial states where workers have seen factories—and their jobs—move overseas. President Obama is talking tough, too. In Ohio this month, he announced a push to try to get the World Trade Organization to sanction China over its subsidies of autos and auto parts.
China-bashing by U.S. presidential candidates is nothing new. On the stump in 2008, Obama and Democratic rival Hillary Rodham Clinton both vowed to confront Beijing over a yuan currency that U.S. manufacturers say is kept artificially low. As president, Obama has followed a pragmatic approach, using a combination of pressure and cajoling over the currency while pursuing trade actions in cases involving such goods as tires and autos. Like his predecessor George W. Bush, he has stopped short of branding China a currency manipulator, a step that would sharply ratchet up tensions and possibly ignite a trade war. The interdependence of the United States and its biggest creditor has led many analysts to predict that no matter who wins the White House on Nov. 6, the tough talk on China will soon fade away.
But this time could be different.
After years of robust, export-fueled expansion, the world’s second-largest economy is slowing. China is grappling with an uneven pace of growth within its borders as it faces a once-in-a-decade leadership transition, with Xi Jinping expected to succeed Hu Jintao as the top leader. And with Europe in crisis, the global economy is fragile, shrinking the market for Chinese-made goods and increasing the temptation for Beijing to use a weak currency to allow it to sell cheap exports. Meanwhile, as American workers struggle with a stagnating jobs market and unemployment above 8 percent, U.S. frustrations over China could grow, putting pressure on politicians in Washington to keep the heat on Beijing. All of this could add up to heightened trade frictions between the two countries.
“I think U.S.-China relations are about to go into a period as difficult as we’ve seen since the early 1990s, when we were in the throes of almost constant tension with the Japanese,” said David Rothkopf, head of the international advisory firm Garten Rothkopf.
Rothkopf, a former Commerce Department official under President Clinton, said analysts have a tendency to dismiss the campaign rhetoric as “par for the course.” But he added, “What may make it different is that if we’re in a slow economy for a protracted period of time, as seems likely, and we’re not creating jobs in the way we would like to … we could be entering a period where we’re seeing not just U.S.-China tension but we may well see much broader trade tension in the world.”
One irony of the campaign-trail sparring over China is that Romney is actually running to the left of Obama on this issue. Romney has accused the president of being a “doormat” on China, leading Obama to fire back by accusing Romney of helping to ship jobs to China through his former role as head of the private-equity firm Bain Capital. The pledge to slap the currency-manipulator label on China is popular with union workers and has found more favor among Democratic lawmakers than Republicans. House Speaker John Boehner has opposed legislation to penalize China over its currency, saying it could lead to a “dangerous” trade war. Boehner’s worries echo those of many in the business community. Although numerous manufacturers would like to see a stronger push on the yuan, large retailers and other companies benefit from trade. Many experts worry that protectionism could worsen the global economy’s woes.
In response to Romney’s attacks on China’s currency, the official Xinhua News agency has called his plans foolish and said they would lead to a trade war.
Obama’s Treasury Department has so far declined to label China a currency manipulator. It has another chance to do so on Oct. 15, when a report on the currency is due. But the administration could decide to postpone the report until after the election.
China ended its fixed peg for the yuan, also known as the renminbi, in 2005. Under pressure from the United States, it allowed the yuan to rise gradually during the later years of the Bush administration and during the Obama administration. But U.S. officials still consider the currency undervalued.
Despite Romney’s pledge to label China a currency manipulator, some analysts remain doubtful he would follow through, especially given the business community’s concerns.
“Time and again, we’ve seen that what candidates say about China on the campaign trail bears virtually no resemblance to what they do once they’re in office,” said Elizabeth Economy, a China expert at the Council on Foreign Relations. “Whatever political lift they get from scapegoating China on the economic front disappears once the task of governing becomes paramount.”
Still, Romney has hammered the currency theme repeatedly, and on his website he lists his vow to label the country a currency manipulator as one of his top priorities. It would be hard for him to back down if he wins the White House.
“When a candidate makes a promise as many times as he has made that one, I believe he would have to do it,” said Bonnie Glaser, a senior fellow with the Center for Strategic and International Studies. But Glaser said that the currency-manipulator label would do nothing to create a more level playing field with China. “It’s a feel-good measure. It doesn’t really get us anywhere,” she said.
This article appears in the September 29, 2012 edition of National Journal Magazine.