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China, Trade Policy—and the 2012 Election

12:00 AM, Sep 29, 2012 • By IRWIN M. STELZER
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The third thing to keep in mind is that campaign rhetoric is not a sure predictor of a candidate’s policy. Obama promised to cut the deficit in half before more than doubling it; Romney promises to repeal Obamacare after introducing the model for that health care plan when governor of Massachusetts. So, too, with trade. The Obama administration pushed through congress free trade agreements with Korea, Panama and Colombia. It warned congress not to impose duties on Chinese goods to offset the undervaluation of the yuan. And simultaneous with his tough trade rhetoric, Obama is leading the drive for a Trans-Pacific Partnership that will open trade with several countries in the region, touting the TPP as a means of increasing U.S. competitiveness with China. As for Mitt Romney, only last month he called for a hemispheric free trade zone with Latin American countries. John Mitchell, Richard Nixon’s attorney general, who later spent 19 months in jail for doing what he said he didn’t during the Watergate scandal, famously said, “Watch what we do, not what we say.” The current candidates for the office once held by Mitchell’s boss are not quite that candid.

The final thing to keep in mind about trade policy is that China’s economy is stumbling as export growth shrivels—just when a new regime needs to establish its authority, and the workforce is striking and at times rioting for better pay and working conditions. The nation’s cost advantage vis-à-vis the U.S. is either falling or, in many industries, completely gone, and the profits of the country’s major industrial companies are in decline—down 6.2 percent in August after falling 5.4 percent in July. The Boston Consulting Group titles its latest study of China “The End of Easy Growth,” and Johns Hopkins University economist Ho-Fung Hung tells the New York Times, “The situation is looking increasingly dire.” The decision of China’s central bank to pour cash into the nation’s banking system ($58 billion in the last few days of this week) might, but only might, give growth a boost in the near term. In the longer term, China will have to decide to live with the massive misallocation of capital resulting from government support of its monopoly, state-owned enterprises, or take steps to move further down the road to something closer to U.S.-style market capitalism. A new, uncertain regime is more rather than less likely to opt for retaining the status quo.

That makes it likely that the regime will continue to divert its masses’ attention from the economy by belligerent moves in the South China Sea, and that the next president of China will resist any efforts by the next president of the United States to deprive his country of the advantages it derives from its unfair trading practices.

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