Thursday, September 15, 2011

Mitt Romney's Playing with Chinese Matches

On Sunday, I explained the economic, strategic and political problems with Mitt Romney's plan to impose countervailing duties on Chinese imports in order to pressure China into changing its currency policies.  Today, two news articles show that, only a week after its release, Romney's politically-motivated plan may already be backfiring.  The WSJ explains:
As early as this month, the Democratic-controlled Senate is expected to vote on a central plank of Mitt Romney’s economic plan.

Well, that’s not how Senate Majority Leader Harry Reid (D., Nev.) will put it, nor will Sens. Charles Schumer (D., N.Y.) or Sherrod Brown (D., Ohio), the authors of the Senate bill to label China a currency manipulator and order the Department of Commerce to impose countervailing duties on Chinese imports. Since Mr. Schumer has been pressing the issue since 2005, he’s not about to give it up to a newcomer.

But the fact that the former Massachusetts governor and Republican White House hopeful has promised to do the same thing if elected president has not escaped notice – either among Democrats or among conservative groups unhappy with the plank.

“Basically, Mitt Romney is standing with the most liberal members of Congress in wanting to raise taxes on American consumers. It’s beyond ridiculous that Romney won’t endorse legislation that would, in effect, implement the protectionist executive order he himself has said he’d sign on Day 1 of his presidency,” said Andy Roth, vice president for government affairs at Club for Growth, a conservative political action committee.

Mr. Romney’s 160-page “Believe In America” economic plan largely sticks to Republican type, promising fewer regulations, lower corporate taxes and a repeal of President Barack Obama’s health care law. But it also talks tough on China, promising steep tariffs on Chinese imports unless Beijing allows its currency to float on international exchange markets.

“It is time to end the Obama administration’s acquiescence to the one-way arrangements the Chinese have come to enjoy,” the policy says. “We need a fresh and fearless approach.”

Sen. Brown, one of the most liberal and labor-friendly members of Congress, echoed that sentiment earlier this month as he promoted the same move: “Strong trade law enforcement—including cracking down on China’s illegal currency manipulation—is critical to closing the trade gap with China and America’s other trading partners. It’s past time for Congress to act.”

Mr. Romney’s campaign would not say whether the candidate would endorse the Schumer-Brown bill. “There have been a number of pieces of legislation addressing China’s unfair trade practices. Governor Romney clearly laid out the approach he would take on this issue in his jobs and economic growth plan,” said campaign spokeswoman Andrea Saul.

Sen. Brown’s staff was happy to tweak the Romney campaign, even as the senator sought credit for the effort.

“Senator Brown has had a long history of standing up against unfair Chinese trade practices. He’s glad that Governor Romney now shares his views that we must put American workers first by treating Chinese currency manipulation as an unfair subsidy so that our companies can compete on a level playing field,” said Meghan Dubyak, a spokeswoman for the senator.
The Boston Globe had a similar story today, snarkily concluding that if Schumer's anti-China bill becomes law, "it would be one less executive order for Romney to pursue and would leave 58 items left on his economic plan."  As humorous as that is, of course, it's also quite distressing because, as I explained at length on Sunday and in previous blog posts, anti-China currency is misguided and potentially devastating for American families and companies (and thus, the US economy).

And, as I also explained on Sunday, Mitt Romney would definitely deserve some of the blame:
[E]ven assuming that the Romney team is just playing politics and doesn't actually intend to follow through with its China currency plans (a valid assumption, I think), the endorsment of the currency/CVD approach by one of the GOP's top presidential contenders could have serious, unintended political and economic consequences before the 2012 election by fueling congressional anti-China protectionism.  Indeed, the plan could unintentionally achieve its politically-motivated goal by leading to the implementation of a US currency/CVD law.  Problematic House legislation (H.R. 639) mandating that the Commerce Department treat "undervalued currency" as a countervailable export subsidy now has over 200 co-sponsors, a large marjority of which are Democrats.  If Romney's indirect endorsement of that legislation lets a few squishy House Republicans join as co-sponsors and thus gets the total number to 218 (an absolute majority), it could lead to a "discharge petition" and force a floor vote on the bill, and there's nothing that sane/resistant GOP leadership could do about it.  Senate Democrats have been itching to vote on similar legislation, and a few Senate Republicans (e.g., Lindsay Graham and the Maine Senators) would certainly join the charge, again with Mitt Romney's implied support.  And does anyone expect President Obama to veto any China currency bill that reaches his desk? 

...[I]f that bill becomes law, it could have serious consequences for US exporters and consumers.  And its implementation could legitimately be owed - at least in part - to Mitt Romney's economic platform.  That's hardly what one should expect from the "safe" and "moderate" GOP candidate.
Other than the fact that the Senate is going before the House, this analysis still stands.  And I must admit: I never thought that my prediction could come true so quickly (the Senate vote announcement came as a pretty big surprise to most observers).  Small victory for me, I guess; too bad it would also be a big loss for the US economy.

When Governor Romney first announced his economic plan, the WSJ editorial board warned that "once a President unleashes protectionist furies they are hard to contain."  Considering this week's distressing events and Mitt Romney's contribution thereto, they probably should change that warning to include "Presidential candidates."

Stay tuned, folks.

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