Republicans Alarmed by Romney’s China Policy

Party leaders are worried about the candidate’s promise to “crack down” on China.

Republicans are starting to worry about their presidential candidate Mitt Romney’s fulminations on Chinese trade policy. The former Massachusetts governor, who will challenge the incumbent Barack Obama for the presidency this November, has fiercely criticized what he described as the Democrat’s “trade surrender” and promises to “crack down on cheaters like China.”

Last week in Virginia, Romney said, “I want to make sure that if a nation cheats like China has cheated, we call them on the carpet and don’t let it continue.” Previously, he accused the Chinese of “predatory pricing” and currency manipulation. “They simply cannot continue stealing our jobs,” he said during a debate late last year.

Politico reports that such rhetoric “may play well in the Rust Belt, where automobile and other manufacturers are especially vulnerable to China’s trade policies and there’s wariness of Obama’s less confrontational approach” but few Republicans and big business donors believe that he will follow through if elected.

And if he did, many analysts say, he’d likely spark a disastrous and counterproductive trade war that would hurt both American consumers and the workers he says he’s trying to protect. But Romney advisors say voters shouldn’t expect him to back off the tough talk if he gets elected and other experts say fears of a “trade war” are overblown since the Chinese need the American market just as much consumers like cheap Chinese imports.

The Republican leader in the House of Representatives John Boehner, a congressman from the industrial state of Ohio, this summer blocked legislation that aimed to force the Chinese into devaluating their currency which would have increased the price of Chinese exports. “Congress passing a law outlining stringent requirements for dealing with the Chinese and the value of the currency, I think, is inappropriate,” he said at the time.

Jon Huntsman, a former American ambassador to China who campaigned for the Republican Party’s presidential nomination himself until January when he endorsed Romney, warned in an interview with CNN this month that the latter’s China policy could instigate a trade war. “If you’re going to take on China on one issue,” he said, “then you better be prepared for the response.”

Huntsman pointed out that previous presidential candidates chastised China, including Barack Obama who urged George W. Bush in 2008 to boycott the Olympic Games in Beijing. “The difference today is, unlike any other election cycle, the United States and China are on the world stage. It was only the United States on the world stage before.” Now the two powers are moving to parity which changes the dynamic.

It isn’t as simple as just poking around the economic side. Yes, they’re manipulating their currency but they’re also appreciating the renminbi about 5 percent per year if you factor in inflation.

Since 2005, when the Chinese renminbi was depegged from the dollar, the value of the currency was actually increased more than 30 percent. Treasury Secretary Timothy Geither has pointed out that “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,” he added. “And that’s a very substantial material change.”

Democrats and Republican nevertheless insist that the renminbi‘s value should appreciate faster. President Obama has said that the Chinese currency is “undervalued” and should be “increasingly driven by the market.” And it was Democratic senator Charles Schumer who questioned Speaker Boehner’s resistance to raising tariffs on Chinese imports. “For some inexplicable reason, the Republican leadership in the House is siding with the Chinese government,” he lamented last year. “The Chinese only understand one thing — being tough.”

Huntsman disagreed. In an interview with Charlie Rose in February, he stressed the disparity between how Americans view China and how the Chinese see their own country.

We look at China and we see 1.3 billion people, the second largest economy in the world, largest consumer of electricity, the largest emitter, so on. […] They look at China and they see seven hundred million people still living in poverty.

China’s leaders are also aware if not apprehensive of the “vast income disequilibrium between the haves and the have nots,” he said. Because the country is so dependent on exports to the West, its political class worries that a reduction in protectionist measures, including letting the renminbi freely, will hurt the competitiveness of their manufacturers and reduce economic growth — while growth has legitimized single party rule in recent decades.

Rather than forcing the Chinese to lessen their dependence on exports at a time of heightened tension in East and South China Sea disputes — a shift that China’s leaders are trying to achieve anyway — Huntsman suggested on CNN that the wiser strategy would be to let the natural development of China’s economy play out. Once the Chinese start saving less and spend more, he predicted, “that means greater exports from the United States which is a job creator right here at home.”

A Romney campaign advisor interviewed by Politico didn’t see it that way. “You have to look at how much we buy from China and how much they buy from us,” he or she said. “Those numbers are a very serious deterrent to the Chinese pursuing retribution against us.” But that works both ways. China and the United States are economically interdependent. As Huntsman pointed out, if the United States initiate pressure or sanctions or tariffs, “the response is going to be punitive on their part.”