In last night's Republican Presidential debate, former US Ambassador to China and Presidential candidate Jon Huntsman was asked about Gov. Mitt Romney's call to confront China over their trade policies. Huntsman appeared to say that we should not confront China over their currency manipulation
Here is the transcript of the exchange. It is difficult to decipher just what Huntsman was saying, but it sure sounds like he says Chinese currency manipulation is America's fault, because we need to “fix our core” (?) — or something:
Governor Huntsman, as you know, Governor Romney’s new economic plan calls for the U.S. government to officially label China a currency manipulator, But “The Wall Street Journal” editorial page says such a move would cause a trade war, perhaps.
HUNTSMAN: He doesn’t get the part that what will fix the U.S-China relationship, realistically, is fixing our core right here at home, because our core is weak, and it is broken, and we have no leverage at the negotiating table.
And I’d have to say, Mitt, now is not the time in a recession to enter a trade war. Ronald Reagan flew this plane. I was in China during the trip in 1984. He went on TV, he spoke to the Chinese people — I’d love to do that too, in Chinese itself — and he talked in optimistic, glowing terms.
And it reminds me about this, Ryan, we are the most blue sky, optimistic people on earth. We’re going to find solutions, …
OK, it isn't clear what “fix our core” actually means here. And it isn't clear what he means when he says “our core is weak.” Maybe he thinks the country will do better in trade with China if we take Pilates classes.
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But some of what he said is decipherable, and that's the scary part. He appears to agree with the Wall Street Journal that confronting China over their trade violations would cause a “trade war.” Here is what the WSJ wrote:
By far the most troubling proposal is Mr. Romney's call for “confronting China” on trade. This is usually a Democratic theme, but Mr. Romney does Mr. Obama one worse by pledging to have his Treasury brand China a “currency manipulator” if it doesn't “move quickly to bring its currency to full value.” He'd then hit Beijing with countervailing duties.
Starting a trade war is a rare policy mistake that Mr. Obama hasn't made, but Mr. Romney claims it is a way to faster growth. His advisers say he doesn't favor a 25% tariff on Chinese goods as some in Congress do, but once a President unleashes protectionist furies they are hard to contain.
The Wall Street Journal is presenting Wall Street's view that standing up for American manufacturing, and asking for trade law enforcement is “protectionist.” The fact is that we have been in a trade war with China for some time, and are losing that war — largely because of our refusal to enforce trade rules. In fact China does manipulate their currency to give them a pricing advantage, and the fact is that this is a violation of trade rules.
Huntsman Says We Are Weak
Huntsman clearly agrees with the WSJ view. He says we are weak, and “we have no leverage at the negotiating table.” This from the guy who has been our Ambassador to China!
The fact is that this perception that we have no leverage comes from China's huge accumulation of US debt. But they accumulated that debt from the most basic violation of trade agreements: we bought from them and they did not buy from us, hence their accumulation of dollars. Those dollars give us tremendous leverage. We can tell them we will stop buying from them, unless they use those accumulated dollars to buy from us! We can tell them they have to move their currency to market rates or we will impose a tariff on their goods. This is what the rules say we are supposed to do.
Joe Biden On China
Vice President Joe Biden has an op-ed in the New York Times today, China’s Rise Isn’t Our Demise, in which he writes,
I remain convinced that a successful China can make our country more prosperous, not less.
As trade and investment bind us together, we have a stake in each other’s success. On issues from global security to global economic growth, we share common challenges and responsibilities — and we have incentives to work together. That is why our administration has worked to put our relationship on a stable footing. I am convinced, from nearly a dozen hours spent with Vice President Xi Jinping, that China’s leadership agrees.
Biden is exactly right that a successful China would make us more prosperous. But this works the other way around. A successful US makes China more prosperous, too. Suppose China did use those dollars it has accumulated to place orders for US-made goods? Imagine what that would do for our economy. And imagine China's people benefiting from finally having access to those imports.
Honest Trade Is Great
Now, imagine what would happen to our trade with China as our economy benefits from that infusion of more than a trillion dollars from China's orders of US-made goods. As our factories reopened, and good-paying jobs returned, and people paid off their debts, our orders from China would also substantially increase, further benefiting China's economy! Actual, honest trade benefits everyone. Everyone, that is, except those currently using this imbalance to increase their own power.
Trade that is manipulated creates huge imbalances that end up hurting all involved. So far Wall Street has used China's manufacturing as a lever to break unions and drive down American wages and benefits, while China has manipulated trade to build their manufacturing and world power. Both are engaged in a game of increasing their power and influence in the world by driving everyone else into their debt. But this has reduced everyone else's ability to make a living — even entire countries — and the resulting imbalances in the world's economy are bankrupting all the potential customers, driving the world economy once again to the brink of collapse. The financial sector cannot rely on further bailouts from the governments they have bankrupted and China has to understand that they can't keep pushing the rest of the world toward the cliff.