Ra-ra skirts are back in fashion, the housing market is heading for a crash, and a Republican administration is blaming a powerful Asian economy for stealing American jobs. Welcome to the 1980s.
China-bashing is on the rise in the United States. Some members of Congress want the administration to slap tariffs on Chinese imports to protect American manufacturers from competition. They say China’s policy of pegging its currency to the dollar is giving it an unfair advantage, and that the administration must act.
China’s currency policy seems to becoming an international obsession to explain the myriad other problems in the world economy. Japan has been blaming its giant neighbour for its economic difficulties for a while, and now European nations are getting in the act. Last week Italy’s finance minister called for tariffs on Chinese imports.
Back in June, US treasury secretary John Snow succeeded in persuading finance ministers from other leading world economies to sign up to a joint statement arguing that exchange rates should be left to the market.
The greenback promptly dived against all the other major currencies, as traders took the statement as a signal that Washington has abandoned its strong dollar policy. With China’s remnimbi pegged and other Asian countries intervening to prevent their currencies rising, most of the adjustment burden has fallen on the euro.
But Beijing’s Washington watchers could be forgiven for some confusion about what the Bush administration’s real strategy is.
When the dollar’s fall becomes too precipitous, Snow repeats the familiar mantra about the importance of a strong currency. Nobody in the markets quite knows what it means anymore, but just in case it could signal a burst of intervention, they take cover and stop selling greenbacks.
Last week Snow declined to add China to a list of countries that manipulate their currencies — a move which would have the opened the door to punitive tariffs.
He told the Senate banking committee that the diplomatic approach was working and there was no need yet for harsher measures. It’s hard to see where he gets his confidence in the power of US financial diplomacy from, though. When President Bush raised the issue with the Chinese premier, Hu Jintao, at a summit of Asian leaders two weeks ago he got a pretty direct rebuff. American sources said afterwards that China had privately indicated it would eventually move to a floating regime, but without a timetable that’s not much comfort for US exporters.
In fact, the real target of the megaphone diplomacy seems to be the American electorate. For an administration looking for a scapegoat for the failure of the economic recovery to create jobs, China is an easy target. The White House wants to get the message across that it is doing something about the China problem without backing Beijing into a corner.
Administration officials know that a rise in the remnimbi would not necessarily be good for America if it choked off Chinese growth. Although it runs a large trade surplus with the US, overall China imports almost as much from the rest of the world as it exports.
Along with India, China is one of the few sources of world demand outside the US. A 20% rise in remnimbi would actually cut world growth, according to National Institute for Economic and Social Research, and would have a small negative effect on the US economy.
There’s no doubt that some of the rhetoric is a rebuff to Beijing for joining the G20+ group of developing countries that proved an implacable opponent at the recent world trade talks in Cancun. Without China, the group would have had much less influence over the direction of the negotiations that saw developing countries refuse the agenda of the west.
The collapse of Cancun was a low point for global economic cooperation, and judging by the tone of the rhetoric since September, the climate is only going to get worse.
As Phil Evans of the Consumers’ Association points out in his submission to MPs on why Cancun failed, it’s a mistake to think about trade as a foreign relations issue with domestic consequences. Trade is about domestic policy, first and foremost.
With a presidential election less than a year away, domestic political considerations are top of politicians’ minds. There will be more angry rhetoric from the White House against Beijing. The American election will be won or lost in the rustbelt states of the north-east that are suffering the most from competition from China.
Some might argue that so long as the White House sticks to words not tariffs, none of this China-bashing matters. Maybe. More likely, the blame game will help erode what little faith remains in America in any sort of multilateral economic cooperation.
It’s a mistake to see the members of this administration as conservatives. When it comes to international institutions, they are Thatcherite radicals prepared to steamroller the status quo. The World Trade Organisation was always seen as the one institution in which the Bush administration could see the point of, but after Cancun, US trade representative Bob Zoellick made it clear America was prepared to walk away from global trade talks and pursue bilateral and regional trade deals if developing countries held their line on demanding sharp cuts in western farm subsidies.
In fact, the retreat was being prepared ahead of Cancun. Evans says the US was notably not engaged in the Cancun talks — compared with its stance at the Doha launch of the talks two years earlier, where Zoellick made significant concessions. Doha was held in the shadow of the September 11 terrorist attacks and marked a high point in American multilateralism. It’s been downhill ever since.
There not much comfort to be had from listening to the Democrat candidates, either. Two of the front runners, Howard Dean and Dick Gephardt, are unashamed protectionists, and even the traditionally liberal Joe Lieberman is muted on the subject.
There’s no substantive grass roots campaign for fairer trade in America because advocacy groups for developing countries have linked themselves with lobbyists protecting small US farmers. As a result, the opposition to present policies is dominated by the anti-trade agenda of the anti-globalisation movement.
The go it alone policy is a dangerous game for America to play. National economies are more closely linked than they were 20 years ago. Japan and China alone bought $95-billion worth of US treasuries in the first half of the year as part of their intervention strategy.
If Asian countries stopped buying US debt, long term US borrowing costs would skyrocket. By propping up its currency, China is helping keep mortgage costs low for Americans. When US diplomats put down the megaphone, Beijing no doubt quietly reminds them that ”vote Republican for higher mortgage rates” isn’t exactly an election winner. – Guardian Unlimited Â