In the past two years, China’s currency has appreciated 17% against the dollar and its trade deficit with the U.S. has fallen 15%. Yet despite the positive numbers, we are suddenly on the brink of a trade war.
Senator Charles Schumer (D-NY) now leads a pack of 130 lawmakers determined to punish China for manipulating its currency, taking American jobs, and — hold your hats — causing the global financial crisis.
Paul Krugman, Nobel Prize-winning poodle, chimed in on cue with a long-winded justification for a 25% tariff on the country’s imports. He also dismissed concerns about China’s massive stockpile of Treasury holdings.
All say the time to confront China is now — but why?
Simple. Because China’s making money and the Democrats want some. Since Obama’s election, the Democrats have taken over the health care industry and the financial services industry, and have designs on the energy industry. Why not grab a piece of import/export too?
Labeling China a currency manipulator allows the U.S. to bypass the World Trade Organization and put a 20-40% tariff on $250 billion of Chinese imports. This is $50 billion to $100 billion extra in new tax revenue a year. And it’s easy to spin this as a “good tax” — like those on smokers, gamblers, bankers, and the wealthy. How many companies are going to publicly complain that their factories in China are now less profitable?
And it’s not just the money — it’s the power. Being able to set Chinese tariffs by industry would give the government unprecedented negotiating strength against the private sector and its unions. Are you sure you want to oppose cap and trade?
Obama’s base is swooning, predictably. They have been clamoring for a vague “Fair Trade” for decades, and they’re only a few years removed from mob violence at G8 meetings, spouting yet more vague gibberish about American “exploitation.” Free-traders aren’t exactly popular in either party now, after more than a decade of failed promises on Mexico and China. They’d be smart to find cover.
Wouldn’t these new trade policies provoke China? Maybe, but the assessment is that China is vulnerable right now. Welcome to our new socialist foreign policy.
If China found itself in a trade war with the U.S., its economic future would be ruined for a decade. Nobody would build a factory in China knowing that it had just lost both its currency advantage and its biggest export market. The country’s property market would probably crash overnight.
And as for China’s $2 trillion in U.S. currency reserves, Krugman has that one all figured out: let them sell. They’ll push the value of the dollar down and make U.S. exports cheaper. And besides, the Fed could just buy the debt back. The joke’s on them for owning debt from a country that doesn’t care about the value of its currency and could use a foreign scapegoat for the economic crisis. The Obama administration has found an easy, rich, deserving, and completely unsympathetic shakedown target in China.
But just because something is politically expedient doesn’t make it right.
A country like China, with a deplorable record on labor, safety, the environment, corruption, intellectual piracy, arms trade, dealings with dictatorships, and basic human rights shouldn’t be given the same trading privileges as close allies like the UK or Canada. That should be obvious to any American.
But labeling them a currency manipulator is fundamentally dishonest.
If China is a currency manipulator, then so are Japan, Taiwan, Singapore, and every other export economy that buys U.S. Treasuries.
If that kind of lie is what it takes to get out of our World Trade Organization obligations, then maybe it wasn’t a very good idea to delegate our trade policy to an international organization that cares nothing for American interests.
The only question that should be asked is whether China meets the standard necessary to be a U.S. trading partner. And when liberals take to the floor to argue that it does, but only if a tax is levied on American buyers, they show their true goals.
An import tax won’t fundamentally change China. But it does fund cherished federal social engineering programs, keeps both American and Chinese workers poor, and salves a liberal’s guilty conscience. Greed and envy, cloaked in idealism.
Conservatives would be forgiven for sitting this one out, but it should be a teachable moment for Americans, investors, and trading partners around the world.
The American socialists need money, and if you have some, you’re on their radar.