Wednesday, June 13, 2012

Silver Linings...

Readers of this blog know that, despite my support for many Republican politicians' free market proposals, I haven't been shy in my criticism of Mitt Romney's stance on US-China trade.  A new "infographic" from Team Mitt makes clear that his sinophobic chest-thumping was not merely a primary play to fans of The Donald, but instead will be a central theme and distinguishing element of Romney's general election campaign (h/t Ben Domenech):

Ugh.  I will not repeat the reasons why I'm not a fan of this campaign strategy (go here and here for that), but I may have discovered the bright-side to the Governor's distressing China protectionism:

It's producing a sudden surge of media skepticism regarding currency hawks' claims.

You see, it used to be that only principled, free-market publications like the Wall Street Journal and the Financial Times would actually spare the ink to explain why well-oiled politicians' anti-China proposals lacked seriousness.  Now, however, a quick Google search reveals overtly skeptical pieces of Romney's China stance from Bloomberg (multiple, actually), the New York Times, the LA Times, the Seattle Times, the New Republic and several other "mainstream" outlets.

Perhaps the most blatant and extensive example of this new scrutiny, however, comes from Reuters today in an "insight" column focusing on a time "when Romney wasn't so tough on China."  I couldn't care less about that time (Ooooh, he did business with China at Bain! Oooh, he courted China when he was in charge of the Olympics!  Zzzzzzzzz), but what did get me excited (stop laughing) were the following excellent passages on the, you know, actual facts about China's currency policies, the US economy and certain politicians' and pundits' claims that forceful anti-China actions (read: tariffs) are the only solution to the Red Menace's pernicious currency manipulation:
Romney and his campaign have often talked about how three companies that Bain invested in during this period - the Staples Inc, Sports Authority Inc and Domino's Pizza Inc chains - have gone on to create more than 100,000 jobs combined.

What he does not discuss is the role China is playing in these businesses. For example, of 80 items randomly chosen in a Sports Authority store in Washington, D.C., earlier this month, about two-thirds were Chinese produced - including tennis balls, bikes and boxing gloves.

At a Staples outlet in New York, the figure was more like 40 percent, including staplers, glue and rulers. The percentage may be bigger on a sales basis because a lot of the higher-priced goods, like computers and other electronic gear, come from China.

To be sure, it is not clear how much China-sourcing the companies did when Romney was at Bain. Staples and Sports Authority had no comment.

There is nothing unusual about U.S. retailers getting their wares made in China; the biggest, including Wal-Mart Stores Inc, do so.

But if China revalues its currency, companies like Staples would face higher costs and might have to raise prices. The retailer might also look for cheaper alternatives - it already produces a significant number of products in countries such as Mexico and Egypt.

A stronger yuan could increase dollar revenues from China for companies like Domino's, which sells there, but any major trade tensions with Beijing could hold back the expansion of U.S. companies in the country....

The saber-rattling from Romney has worried business executives. Behind closed doors, some grumble that he is wasting political capital on the currency question when there are bigger problems to resolve with China, such as access to its financial markets and protecting U.S. companies' intellectual property.

"Given his background, many of us had assumed he would take a broader view," said Erin Ennis, vice president of the U.S.-China Business Council, which represents about 250 companies that do business with China, including Dow Chemical Co, Ford Motor Co and Apple Inc.

Thomas Donohue, president of America's largest business lobby, the U.S. Chamber of Commerce, said the yuan's rise in recent years had taken away the case for declaring China a currency manipulator. "You can't make that argument anymore," he said in April.

The yuan has appreciated nearly 30 percent since China broke its peg to the U.S. dollar in 2005. When adjusted for inflation, it is up about 40 percent against the greenback, and China labor and other manufacturing costs have climbed.

Talks between Washington and Beijing about adjusting the yuan's value are already under way and have shown some progress.

But still, Romney's declaration of China as a currency manipulator would carry risks. If the United States' third-largest export market feels it is being unfairly targeted, it could fight back with more than just words.

In 2009, when the Obama administration imposed tariffs on low-end tires from China, Beijing immediately launched a formal anti-dumping probe of American exports of chicken and auto parts.

The World Trade Organization has since ruled that the United States is entitled to impose the extra duties on Chinese tires. The two countries are still fighting over the chicken parts, and new disputes have arisen over solar panels, wind turbine towers and rare earths.

With the world's two largest economies tightly intertwined and Washington increasingly seeking Beijing's help on diplomatic issues, the fear is that China could not only slow the appreciation of the yuan but also retaliate in other areas important to the United States, such as U.S. farm exports and Western sanctions against Iran.
If these passages sound familiar, they should: they're pretty much identical to many of the arguments that we (sane) free traders have made over the past few years in opposing any sort of aggressive US protectionism based on alleged Chinese currency manipulation:
  • Adverse effects on US consumers (including many companies and their workers) caused by any big appreciation of the RMB? Check.
  • Trade diversion to other low-cost markets rather than increased US manufacturing as Chinese imports get more expensive? Check?
  • Context of the significant appreciation of China's currency against the dollar, as well as increases in domestic labor costs and export prices, over the last few years? Check.
  • Potential Chinese retaliation against US investors and exporters in response to any US unilateralism? Check.
  • Questioning the strategic logic of any US threats (i.e., that China might actually slow RMB appreciation if it feels its being strong-armed by the United States)? Check.
Impressive.  Indeed, I think the only thing separating Reuters' skepticism from my own is the legal dubiousness of any currency-related trade measures like countervailing duties.  But as impressive as this new article and its brethren are, I don't seem to remember similar analyses over the last few years when candidate-turned-President Obama routinely groused about Chinese currency manipulation and its devastating effects on the US manufacturing sector.  Sure, there was the occasional news report on Chinese currency appreciation or some other insular event that proved free traders' points about the pointlessness of China currency antagonism, but nothing - nothing - like the column above.  (The only thing I could find was this 2011 Washington Post editorial, and it blames Congress and never explains the flipside of RMB appreciation.)

So, nice work, Governor Romney: you've apparently opened the media's eyes to the myriad flaws in currency hawks' plans.  If that was your secret plan all along, I'm impressed. (Again, stop laughing.)

And, hey, who knows: at this rate maybe Reuters' detailed legal analysis will arrive in late October when they're really desperate.

(P.s. And before you start thinking that the China currency issue puts a +1 in President Obama's column, here's his top political adviser strongly implying that his boss is the real "trade warrior" in the 2012 race.  Boy, I sure can't wait for the two candidates to duke it out over that inglorious distinction.  Sigh.)

No comments: