The Senate last week passed a bill that would require the U.S. to impose tariffs on Chinese imports to compensate for Beijing’s cheap trade tricks. On the surface, the bill sounds like a wise idea. If China artificially devalues its currency to lower the price of its goods (and so make them more attractive to U.S. consumers), aren’t we justified in an attempt to bring that price more in line with reality? Maybe — but Chamber of Commerce head Thomas Donohue today offered an important reminder of why the bill is a bad idea:
Thomas Donohue, the president and CEO of the influential business group, told a group of Dow Jones reporters and editors that U.S. policy makers should resist embracing protectionism. While understandable in times of economic stress, an attempt to force China’s hand could have negative repercussions for U.S. firms, he said, as Beijing seeks to maintain full employment for its citizens.
“They want to keep all those people working and if that was forced on them somehow … they would simply just drop the prices as low as they have to to keep those folks working,” Mr. Donohue said. …
Mr. Donohue said it is important for U.S. officials to press China to speed the pace of appreciation — it’s a “great idea to ring their bell and them know we’re still worried about this” — but protectionist policies could backfire.
“Keeping them as a very positive force in the things we’re trying to do in the world is important, and sticking a stick in their eye is not a smart idea,” he said.
In other words, as has been oft-repeated, this will start a trade war.
Don’t buy the lie that the China currency bill is a jobs bill, either. As U.S.-China Business Council president John Frisbie has explained, “The main reason for the decline in manufacturing jobs [in the U.S.] is productivity, not China. The U.S. makes more with fewer people, primarily because of productivity and technology advances. … Yes, China needs an exchange rate that better responds to global trade flows. But China’s exchange rate is probably not as significant a factor in the U.S. trade deficit that some make it out to be.”
Also consider that Chinese imports support their fair share of jobs for non-Chinese workers (a.k.a. workers in the United States, as well as in other countries).
Because China’s blatantly unfair practice of undervaluing its currency is understandably unpopular, the bill to slap sanctions on China enjoys bipartisan support in both the House and the Senate. Still, the House should resist passing it. If Sen. Chuck Schumer and others in support of the bill seriously want to credibly demand that China stop its devaluation, the best bet would be to address the U.S. deficit and debt and to reverse Barack Obama’s failed economic policies so the Federal Reserve won’t have any excuse to continue to intentionally devalue the U.S. dollar through quantitative easing. In other words, Schumer and company should remove the plank in the U.S.’ own eye before worrying about the speck in China’s.
Again, Republicans and Democrats alike are guilty of bashing China — and the electorate responds when they do. As Ed pointed out a while ago, that’s one reason Sen. Harry Reid moved the China currency bill ahead of the president’s jobs bill. But, as international trade attorney Scott Lincicome puts it, China-bashing is “good politics, bad consequences.” As voters, we need to educate ourselves on this issue so we don’t respond viscerally to what sounds good in theory but would be disastrous in practice.