United States President Barack Obama and
his likely Republican challenger Mitt Romney both
accused China of "unfair trade practices" last
week.
The president has staked his
re-election on a campaign of economic nationalism,
promising, in his yearly address to congress in
January, to raise taxes on businesses that ship
"jobs and profits overseas" and fiscally reward
companies that create jobs in America.
The
Republican, himself a former businessman, should
be more in favor of trade than the incumbent yet
he promised in a Wall Street Journal op-ed that,
if elected, he would not continue "an economic
relationship that rewards China's cheating and penalizes
Both politicians say
that China doesn't play by the "rules". Obama
wants to incentivize domestic manufacturing with
tax credits and erect a trade enforcement agency
to crack down on China's stealing of copyrights.
Romney intends to designate China a currency
manipulator "and take appropriate counteraction".
Neither wants to start a trade war, they
say, but both either have implemented or would
implement policies that mimic Chinese
protectionism.
Under Obama's watch, the
American central bank has printed several
trillions of dollars to boost liquidity in
financial markets. The dollar has lost its value
as a result, reducing the cost of American
exports. Yet the Americans lambast China for
keeping its currency, and therefore exports,
underpriced, even if the value of the yuan has
appreciated by more than 50% compared with the
dollar since 2005. President Obama nonetheless
insists that the Chinese currency is "undervalued"
and should be "increasingly driven by the market".
Because China is so dependent on exports,
it cannot afford to let its currency appreciate at
a steeper pace and hurt its manufacturers. Premier
Wen Jiabao acknowledged last year that China's
economic development "still lacks balance,
coordination and sustainability". A sudden
increase in the yuan's value would bring
"disaster" to China, he warned. "Factories will
shut down and society will be in turmoil."
It's not an exaggeration. Relatively small
price changes could convince companies to move
production elsewhere while China has hundreds of
millions of people still living in poverty who
want factory jobs.
Also under Obama's
watch, indeed, his personal direction, the United
States government bailed out ailing automakers,
banks and insurance companies which it deemed "too
big to fail". Yet it criticizes China for seeking
to create "national champions" in particular
industries with public financial support. Granted,
the Chinese method is permanent but the outcome is
the same - protected industries that have an
unfair advantage over their foreign competitors.
Obama and Romney both lament China's
inadequate legal protection of international
investment and complain that it shields entire
sectors of its economy from foreign enterprise.
The Chinese legal system is unable to guarantee
the sanctity of contracts while regulations can be
arbitrarily enforced and subject to political
interference but both countries deter foreign
investment with legal restrictions and superfluous
red tape.
Obama and Romney like to talk of
creating a "level playing field", but just as
China prohibits investment in critical industries,
the United States does not allow foreign sales of
high technology and weapons so China must do
business with Europe and Russia.
Little
wonder than Vice President Xi Jinping, Hu Jintao's
likely successor, told the Chamber of Commerce in
Washington DC last week that America should be
"lifting restrictions on high-tech exports to
China and providing a level playing field for
Chinese firms investing in America" as well.
It seems the leaders of both nations want
the same but the measures they propose to enact
would not accomplish a freer business climate. To
the contrary, Obama would penalize American
companies that collaborate in Chinese attempts to
"steal" their jobs and Romney vows to punish China
for "cheating" the system.
Both urge China
to "play by the rules". China is left wondering
why it should abide by rules it had no part in
writing - rules that only seem to apply, moreover,
when American interests are threatened.
Nick Ottens is an historian from
the Netherlands and editor of the transatlantic
news and commentary website Atlantic Sentinel. He
is also a contributing analyst with the
geopolitical and strategic consultancy firm Wikistrat.
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