Issue of the week: Trade brinkmanship with China

last updated 8 January 2015

Who says bipartisanship is dead? said Zachary Karabell in Huffingtonpost.com. The House of Representatives last week came together in an overwhelming majority, voting 348–79 to approve a bill empowering U.S. trade authorities to slap punitive tariffs on a wide range of goods imported from China. China is illegally subsidizing those goods, according to the bill, by holding down the value of its currency, the renminbi, thus making Chinese exports cheap while raising the price of its imports. The legislation assumes “a direct line between China, its currency, its exports of lower-cost goods to the United States, and the erosion of middle-class life” and high unemployment in the U.S. What nonsense. “U.S. manufacturing has been bleeding jobs” and middle-class living standards have been slipping since the 1970s, long before China grew into an economic force. And the current job shortage results largely from the woes of the construction, housing, and auto industries, not from Chinese trade policy. Fortunately, with the Senate opposed, the House’s expression of “emotion, anger, and frustration” stands no chance of becoming law.

The House’s “impotent fury” is damaging nonetheless, said Bill Frezza in RealClearMarkets.com, because it raises the specter of a destructive “global trade war.” The Great Depression, don’t forget, took hold after Congress slapped 60 percent tariffs on imports. Our trading partners followed suit, international trade dried up, and misery ensued. Even without a trade war, high tariffs on Chinese goods would hurt poor and unemployed Americans by “doubling the price of every item at Wal-Mart.” How can “raising the price of the products we buy from China” create manufacturing jobs in the U.S.? said National Review Online in an editorial. If U.S. tariffs managed to take any low-skilled, low-cost jobs from China, they’d reappear in Thailand or Vietnam, not in America. Congress also forgets that if the U.S. imposes tariffs, the Chinese might stop “lending us our own money back.” That would send interest rates soaring, ushering in a severe recession.

Trade negotiations with the Chinese are just smoke and mirrors without “the threat of retaliation,” said Paul Krugman in The New York Times. Diplomacy has failed; only a realistic threat will budge China from its policy of sucking in capital from every corner of the developed world and sitting on it to hold down the value of its own currency. A responsible member of the global community would be reinvesting that mountain of capital to help “the world economy as a whole pull out of its slump.” Yet China does no such thing. The Obama administration has “been incredibly, infuriatingly passive in the face of China’s bad behavior.” At least Congress has proved willing to call that behavior what it is: a “predatory currency policy.”