The race for the Republican nomination for president has proven to be tumultuous and unpredictable, a storm of see-sawing polling numbers and accusations of flip-flopping. But one of the consistent themes of the nomination race (and the debates) thus far has been the topic of our economy in relation to China.
It is no secret that the China holds many dollars in American debt — a figure now in the trillions. The Chinese government owns approximately eight percent of the overall U.S. debt. There is a persistent fear of China as “America’s banker” and enemy that exudes from every corner of the Republican debates. We saw this clearly in the New Hampshire debate when Mitt Romney launched a very direct attack on China’s economic policies:
Day one, I will issue an executive order identifying China as a currency manipulator… People who’ve looked at this in the past have been played like a fiddle by the Chinese. And the Chinese are smiling all the way to the bank, taking our currency and taking our jobs and taking a lot of our future. And I’m not willing to let that happen.
Former Senator Rick Santorum followed up on Governor Romney’s tirade, saying, “I want to beat China… I want to go to war with China and make America the most attractive place in the world to do business.” Taken out of context, Santorum’s declaration of war with China seems very dangerous and aggressive, a move some see as antagonistic. But Santorum’s comments illustrate a very popular sentiment in American politics right now: China is a big, bad country we must fear, one that is taking our jobs and ruining our economy.
There is certainly truth to that belief. China has been rapidly expanding its industrial production, growing its GDP at 9.1% annually compared to 1.3% in the U.S. and 0.2% in the European Union. Furthermore, Chinese workers earn far less money than comparable American workers, allowing many U.S. corporations to move operations to China for its economic advantage. Additionally, China is accused of systematically devaluing U.S. currency in order to exploit our economy and gain leverage on the stage of international commerce.
Many lawmakers and policy wonks firmly believe that slapping sanctions on China for its currency manipulation would be a smart move politically for the United States. Romney, the most aggressive Republican nominee in terms of China, has asserted that the communist country is stealing American innovations. He suggests taking a number of steps against China, including disciplinary actions, if it does not change its approach to relations with the U.S.
It’s easy to see that Republicans (and many Democrats as well) are steadfast in their opposition to Chinese policies and their effect on the U.S. domestically. But are they right in their opposition? If elected, would any of the nominees maintain their contentious rhetoric and take a firm stance against one of our biggest “frenemeys” in the global community?
The U.S. Senate passed a bill last week allowing the government to impose higher taxes on countries that purposefully undervalue American currency in order to gain an economic advantage. The Republicans on the debate stage seem to have gotten their wish for a tough stance against China from the U.S. economic sphere. Unfortunately, I think this move is one that will only set the U.S. back in its relationship with the Chinese government.
Republican nominee Jon Huntsman put it perfectly when he said, “I don’t want to find ourselves in a trade war. With respect to China, if you start slapping penalties on them … you’re going to get the same thing in return.” And that is exactly the case. By sanctioning China, the U.S. risks having the same penalties imposed upon us, penalties we can’t afford when our economy is in its current state. Fiscally, China has a huge advantage over America: it sells four times as many goods to the U.S. as the United States sends in return. The relationship is worth $450 billion. Can we manage to start a trade war with China? I don’t think so.
I truly believe that a move like this could indeed induce a commercial battle between the U.S. and China. A trade war really helps no one. As the Associated Press points out, the United States essentially expanded the Great Depression by imposing higher tariffs on foreign goods, commencing a breakdown of international business and inciting global retaliation. Some economists fear the same could happen with U.S. sanctions on China. These sanctions on China won’t make them back off, it will just anger them.
This all begs the question, How can Republican voters seriously be supporting candidates like Mitt Romney and Herman Cain over Jon Huntsman? Romney, the flip-flopping governor of a state with a poor job creation record, and Cain, the CEO of a national pizza chain, have little experience in foreign relations. Huntsman, on the other hand, was the U.S. ambassador to China and former governor of the economically stable state of Utah. If Americans are so afraid of the rising power of China, wouldn’t they want to support a man who is fluent in Mandarin, has vast experience in the business sector, and was the chief diplomat to the very country we seem to be so angry with?
It will be interesting to see how our conflict with China will play out. I think we need to listen to Jon Huntsman when he says,
For the first and the second-largest economies in the world, we have no choice: We have to find common ground… [A trade war] disadvantages our small businesses. It disadvantages our exporters. It disadvantages our agricultural producers.
This anger toward China, and the use of the country as a scapegoat for our domestic problems, is a very convenient tool politically. This does not go to say that China is completely innocent; there is substantial evidence to show that our relationship is in some ways harmful. But it would be irresponsible to begin what appears to be an economic battle with one of the biggest economies in the world. It may work with voters to get elected, but it won’t work when it comes to American policies.