House Republican leader John Boehner highlighted a policy rift with his party’s likely presidential candidate Mitt Romney on Thursday when he insisted that the United States should not take legislative action to try to force the Chinese into devaluating their currency.
“Congress passing a law outlining stringent requirements for dealing with the Chinese and the value of the currency, I think is inappropriate,” said Boehner.
That puts the House speaker at odds with Romney who has vowed to declare China a “currency manipulator” if he manages to replace Barack Obama as president in November.
During a televised election debate late last year, Romney further accused China of “predatory pricing” and promised to “crack down on cheaters like” it. “They simply cannot continue stealing our jobs,” he said.
Romney proposed to levy tariffs on supposedly underpriced Chinese imports. When legislators in October considered to do exactly that, Boehner expressed reservations. “While I’ve got concerns about how the Chinese have dealt with their currency, I’m not sure this is the way to fix it,” he told reporters at the time.
Although China is shielding its own market with protectionist industrial policies while promoting exports through a cheap renminbi, the value of the yuan has increased by more than 30 percent against the dollar since it was depegged in 2005.
Treasury Secretary Timothy Geither has pointed out, moreover, that the value of the Chinese currency alone does not shape the long-term investment decisions of American companies. Inflation is another crucial factor.
Chinese inflation is much more rapid than the United States now. Chinese inflation is probably going to be more than twice, three times American inflation rates for a long time to come.
As a result, exchange rates, in real terms, are appreciating “at roughly a pace of about 10 percent a year,” according to Geithner. “And that’s a very substantial material change,” he admitted.
Nonetheless, bashing Chinese currency manipulation is a popular campaign theme in the United States, regardless of party affiliation.
It was Democrat Charles Schumer who lambasted Republicans last year when they took Boehner’s advice and voted down a bill that would have raised tariffs on Chinese imports. “For some inexplicable reason, the Republican leadership in the House is siding with the Chinese government,” the senator from New York lamented at the time. “The Chinese only understand one thing — being tough.”
Romney touts the same argument: China is allowed to take advantage of American workers by a weak incumbent president. Yet Barack Obama similarly criticized China’s “unfair trade practices” as recently as February when he told factory workers in Wisconsin, “I will not stand by when our competitors don’t play by the rules.”
American politicians may like to pretend that China isn’t devaluating its currency faster because of their inaction but the reality is that Chinese leaders are the ones who are afraid to take action. At a time when China’s growth is slowing down as a result of reduced Western demand and aggressive competition from other low wage countries in Southeast Asia, they can ill afford to imperil economic expansion by inadvertently raising the cost of exports. The stability of single party rule depends on it.
What the United States will accomplish with “tough” talk and tariffs is less business with China and possibly Chinese countermeasures which could spark a trade war. That is in neither country’s interest. It is unfortune that John Boehner’s reluctance to see this through appears to be the only thing that is standing in the way of either party incurring greater damage on the world’s economy. Unfortunate, because it signals an alarming degree of economic illiteracy on the part of policymakers.