GOP Candidates Get it Wrong on China When Bashing Trump on Trade

The Associated Press

Advocates for domestic U.S. manufacturing may have been left profoundly disturbed by some of the attitudes on display in last night’s GOP Presidential Debate.

On hand were the perennial platitudes and banalities that have kept U.S. manufacturing locked into a downward spiral for the past 15 years.

It all started with Donald Trump being asked why he told the New York Times that he would impose a 45 percent tariff on Chinese imports. In his response, Trump explained that 45 percent may not be the exact figure. But what matters is that the Chinese Yuan may be undervalued by as much as 45 percent, and corrective action is sorely needed.

Notably, Trump’s campaign website prominently states that a Trump administration would declare China a “currency manipulator” on day one in office.  This is logical and commendable— and it’s exactly what Mitt Romney vowed in 2012.  It also reflects the earnest promises that Barack Obama made in April 2008 at a forum held by the United Steelworkers union. (Yes, Obama promised tough action on China’s currency during the 2008 campaign. But he never followed through.)

In last night’s debate, Trump emphasized the clear problem of China’s currency manipulation, which makes Chinese exports artificially cheap in the U.S. market (and also makes America’s products artificially expensive for China’s consumers.) Trump is absolutely right on this point, and such currency undervaluation is at the center of China’s massive and growing trade surplus with the United States—an imbalance that has cost millions of U.S. manufacturing jobs, according to the Economic Policy Institute (EPI.)

And this is where the clueless rhetoric emerged from Trump’s rivals.

John Kasich jumped in to say that he’s a “free trader,” but he supports “fair trade.” In a jumbled response, he said that he supported NAFTA, and supports the “PPT”— and of course he meant the TPP— the Trans-Pacific Partnership. But that TPP trade deal is yet another managed trade arrangement engineered by various multi-national interests. It simply continues the current model, wherein low-wage nations gain unfettered access to America’s massive consumer market— and remain unable to afford America’s exports.

Marco Rubio then attacked Trump’s China policy because it will raise costs for U.S. consumers.

What he means is that a tariff on Chinese goods will raise the cost of goods sold at the local mall. But what Rubio overlooks is that a tariff actually restores the true market value of the imported good. Simply put, Chinese goods are unfairly priced right now precisely because of Beijing’s protectionist tactics. China is not allowed under World Trade Organization (WTO) rules to manipulate its currency. But it does anyway. The massive energy and industrial subsidies that China funnels to its manufacturers are also actionable under WTO law. But Beijing does it anyway.

And so, Rubio seems not to know that the only reason a Chinese good is cheaper than its American counterpart is because Beijing continues to brazenly game the system. A corrective tariff, or a designation as a currency manipulator (with subsequent penalties), would bring the Chinese good back to parity with its American-made counterpart. And since America’s consumers want to buy “Made in USA,” such an adjustment would finally allow for the much-vaunted “level playing field.”

It should be noted that American-made goods do not contain the lead, cadmium, and other toxic substances reported in frequent recalls of Chinese products. American-made goods are produced in safe, environmentally sound factories that pay workers a good wage, plus benefits. This is the reason why “Made in USA” matters— because the manufacturing jobs support and grow America’s middle class.

Not to be outdone, Jeb Bush also entered the fray to suggest that Trump’s actions would start a trade war. Bush fretted that Trump’s tariff would prompt a response from China, thus raising the cost of U.S. exports and pricing them above the Chinese consumer.

But Bush is incredibly naive on the subject.

Not only is the United States already in a full-out trade war, and one that America didn’t ask for, but Beijing already sees to it that U.S. goods gain only limited access to the Chinese marketplace. The currency game has already raised the price of U.S. exports. And a host of other tariff barriers also confront America’s products. Simply put, Beijing doesn’t want to buy America’s goods—which helps to explain why the U.S. trade deficit with China will rise to a new record of roughly $366 billion for 2015.

Bush also overlooks that Beijing only reacts to demonstrations of strength. Case in point: In 2005, the U.S. Senate voted procedurally to move forward on a measure to address China’s undervalued currency. The next day, Beijing shocked the world by untethering the strict peg on its currency. Of course, the move was only infinitesimal, and the Yuan has only budged incrementally in the ensuing 10 years. But it was a shrewd move that served to postpone concerted U.S. action.

Beijing also budged the Yuan before a visit from Vice President Biden during Obama’s first term. And it moved the Yuan before a contentious G-20 summit.

The point is, Beijing happily tramples on America, and will continue to do so unless it faces consequences.

But China’s ruling regime has one overriding concern: To keep the gravy train rolling. To stay afloat, China must continue its export-led strategy of selling shirts, cameras, steel, tires, and you-name-it to America’s affluent marketplace. That is everything to them.

And as Trump correctly noted, this gives America real bargaining power. And yet Washington doesn’t grasp this. The Clinton, Bush, and Obama administrations have acquiesced to China’s rise, without paying heed to the consequences in term of lost manufacturing jobs, and a growing dependency on key commodities (including critical military hardware.)

Donald Trump is absolutely right that China is cheating.

And this one-sided battle is eviscerating America’s middle class. The attitudes of Sen. Rubio, and Governors Kasich and Bush, demonstrate a stiff mindset locked into a failing trade model. Until America flexes its collective muscle, and holds Beijing accountable for protectionist tactics that violate world trade law, the abysmal status quo will continue, with more job loss, and a hemorrhaging of the manufacturing base that once made America strong and independent.

Steven Capozzola has spent the past 15 years working on issues related to manufacturing and global trade policy.


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