Motley Moose – Archive

Since 2008 – Progress Through Politics

The China Blames Game

Cross-posted at River Twice Research.

So bipartisanship isn’t dead. By a vote of 348-79, Democrats and Republicans alike put aside their acrimonious differences and agreed, at least for a moment, to stop blaming each other for the sad state of American economic life. Instead, they agreed to blame China.

The bill authorizes the president of the United States to impose tariffs on Chinese goods in response to what it considers an illegal subsidy of Chinese exports in the form of an undervalued currency. It helps that the supporters in the House know that this bill has precious little chance of becoming law; it will not pass the Senate and it is unlikely that it would be signed into law by Obama if it ever came to that. As a result, the bill is the perfect campaign gesture, bombastic, angry, self-righteous, and without much real-world consequence.

The office AFL-CIO union leader Richard Trumka issued a statement that encapsulated the thinking behind the bill: “the House of Representatives voted to put an end to the Chinese government’s currency manipulation, which has destroyed millions of good American manufacturing jobs. For more than a decade, the Chinese government has deliberately manipulated the value of its currency, ballooning our trade deficit with China and costing American communities good jobs….Working people continue to mobilize to elect candidates who will put America’s workers first and are committed to rebuilding an economy that values working people. This November we will send a powerful message that we will support those who vote for an economy that works for everyone.”

The idea is that there is direct line between China, its currency, its exports of lower-cost goods to the United States, and the erosion of middle-class life and now soaring unemployment. But U.S. manufacturing has been bleeding jobs for decades, since the early 1970s, when the Rust Belt began to decay faced with competition from the likes of Japan and Germany. That continued almost unbroken for the next decades, as countries ranging from Taiwan to Mexico became the low-cost producers (remember Ross Perot’s famous warning about NAFTA in 1992 and “the giant sucking sound” of jobs heading south-of-the-border?). California and the state of Washington were hit hard by cuts in defense spending in the early 1990s, and industry throughout the country shed jobs as technology and robotics allowed fewer workers to do more. China is simply the latest example of these trends and hardly a cause.

What’s more, the recent loss of millions of jobs since 2008 has everything to do with the collapse of the construction and housing industries, along with the near-death of the Big Three American auto makers than with any competitive challenge from China. China has become a large car market for General Motors, but not for export to the United States: for sale in China. It would take a massive leap unsupported by any fact to lay the demise of the U.S. auto industry at the feet of China, or for that matter hold China responsible for the sub-prime and derivative debacles. Those are the cause of recent job loss.

Furthermore, China has been revaluing its currency, nearly 20% between 2005 and 2008 and now nearly 3% since June when the government resumed that policy having shelved it during the midst of the global financial crisis. It is in the domestic interest of the Chinese government to raise the value of their currency because they are focused on building up on internal, domestic consumption market. They have no wish to be dependent long-term of the vagaries and whims of American consumers, and higher purchasing power for Chinese consumers is the answer. They are not revaluing quickly enough to suit an America stuck in second gear and looking for someone to blame, but revaluing they are.

Of course, reason and fact aren’t driving these measures. Emotion, anger and frustration are. There are good reasons to be angry with the state of affairs in this country and frustrated by the inability of the political class to do more than contribute to the confusion. But blaming China for a series of domestic challenges is not an act of strength or courage. It is an act of desperation, and the only saving grace is that this measure is a gesture, not an actual law – yet. But it suggests that the only thing Congress can agree on is how to shoot ourselves in the foot, which requires minimal skill and even less aim. Railing against Beijing may feel empowering, but seriously grappling with growth, investment, infrastructure and innovation, well that would actually be empowering.

For a look at additional blogs and other writings of mine, feel free to visit River Twice Research.