A day after meeting China’s leader in waiting, Xi Jinping, at the White House in Washington DC, President Barack Obama criticized the Asian country’s “unfair trade practices” during a visit to a factory in Wisconsin.
“I will not stand by when our competitors don’t play by the rules,” he told workers at a company that he lauded in his State of the Union address last month for having moved some one hundred jobs back from China.
In Rust Belt states like Michigan, Ohio, Pennsylvania and Wisconsin, China is often blamed for “stealing” American jobs. The president, who carried all of these industrial and traditional swing states in the 2008 election, promised that he would seek to “insource” jobs to the United States on Wednesday. His approval rating hovers below 50 percent across the area, according to Gallup surveys. It would be difficult for him to win reelection in November without winning large states in the Midwest.
In his meeting with Vice President Xi yesterday, Obama urged the Chinese to ensure that there could be “a balanced trade flow” between their two nations. The president believes that China’s heavy reliance on exports to the United States and American overconsumption were among the root causes of the 2008 economic downturn that caused unemployment in his country to reach 10 percent.
The United States export some $100 billion worth of goods and services to China, making the country America’s third largest trading partner. China sells nearly three times as much to the United States.
When Chinese president Hu Jintao visited America in January of last year, Obama joked that he wanted to sell China “all kinds of stuff” and recommended that they reduced trade barriers and improved copyright protection to attract more international business.
Xi this week called upon the Americans to do the same. In a Chamber of Commerce speech, he said that the United States should be “lifting restrictions on high tech exports to China and providing a level playing field for Chinese firms investing in America.”
The United States prohibit foreign sales of high technology and weapons, forcing China to do business in Europe and with Russia. The Chinese curtail foreign investment in certain industries; so do the United States, channeling Chinese money into a limited number of sectors of the American economy.
One factor that tilts the balance in China’s favor is its undervalued currency which President Obama and members of his administration blame for keeping Chinese exports artificially underpriced at the expense of their American competitors.
The Chinese argue that by printing hundreds of billions of dollars and flooding the market with cheap money, the American central bank drives down the exchange rate of the dollar which reduces the costs of American export products.
There is plenty of blame to go around but for all the talk of freer trade, neither China nor the United States is making much of an effort to make it easier for each other’s companies to do business within their borders.
Chinese protectionism is particularly evident in the realm of investment where foreigners must cope with a lack of regulatory transparency and laws that are inconsistently enforced. Despite recent efforts to protect international investment, the Chinese legal system still cannot guarantee the sanctity of contracts while capital account transactions are tightly regulated.
Domestic industries and manufacturers with allies in the Communist Party manage to avoid reforms and interference as Beijing seeks to build “national champions.”
Similarly, in the United States, automakers, banks and insurance companies that were deemed vital to the national economy received hundreds of billions of dollars in government support to stay afloat. The mechanism may be less permanent but the outcome is the same — protected industries that have an unfair advantage over their foreign competitors.
President Obama won’t champion freer trade when it doesn’t appear to benefit the American economy, at least not directly. Rather, in his latest State of the Union address, he suggested that companies that are “moving jobs and profits overseas” should be taxed heavier. “That money should be used to cover moving expenses for companies,” he said, “that decide to bring jobs home.” He proposed to increase government loans to small businesses, finance retraining programs for manufacturing personnel and enact sanctions “when our competitors don’t play by the rules.”
The Chinese are left wondering why they should abide by rules that they had no part in writing and only seem to apply when America’s interests are threatened.