House Republican leader John Boehner clashed with his party’s likely presidential candidate, Mitt Romney, on Thursday, when he argued against 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 speaker at odds with Romney, who has vowed to declare China a “currency manipulator” if he manages to defeat Barack Obama in the election in November.
During a debate last year, Romney accused China of “predatory pricing” and promised to “crack down on cheaters like” it.
“They simply cannot continue stealing our jobs,” he said.
Romney, a former businessman and governor, called for tariffs on supposedly underpriced Chinese imports.
When legislators considered doing exactly that in October, Boehner expressed doubt. “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 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 leader from New York lamented at the time. “The Chinese only understand one thing — being tough.”
Romney has the same argument: China is allowed to take advantage of American workers by a weak president.
Yet Obama also 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 Chinese growth is slowing down as a result of reduced Western demand and aggressive competition from other low-wage countries, they can ill afford to further jeopardize economic expansion by raising the cost of exports. Communist Party rule could depend 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 too bad Boehner’s reluctance to see this through is the only thing standing in the way of either party bringing harm on the world economy. It signals an alarming degree of economic illiteracy on the part of policymakers.