March 30, 2010
Obama Blames China
"It is certainly in our interest, and in the interest of peace and stability in Asia and the world, that we take what steps we can toward improved practical relations with Peking." That was Richard Nixon in his first foreign policy report to Congress in 1970, and that perspective, in essence, has shaped U.S. policy toward China ever since. Over the course of the last forty years, the relationship has been tested many times, but the general movement has been just as President Nixon predicted: toward peace and stability. The foundation of this improvement has been the mutually beneficial opening up of trade relations between the two countries.
Now that vital economic relationship has been jeopardized by Democrats seeking a scapegoat for their failed economic policies. It has become increasingly obvious that the outcome of the fall elections will turn not just on outrage over health care reform (and there is plenty of reason to be outraged), but also over the issue of high unemployment.
Congress and the president have no one to blame for this situation but themselves, but that doesn't stop them from trying. Having played the "Blame President Bush" card until it is worn out, they now seek someone else to blame. There already exists a vague sense among the electorate that China, India, and other developing countries are "stealing" American jobs by offering to do them more cheaply than in the U.S. China is the largest exporter among developing countries, so why not blame China?
Obama has spent the first fifteen months of his presidency blaming others for his mistakes -- blame the banks, blame the insurance companies, blame the rich -- so it is not surprising that he is now blaming foreign competition for the continuing loss of jobs at home. All that is needed is to drum up public anger against China in the same way that Democrats singled out insurance companies during the health care debate or Big Oil during cap-and-trade. Target a scapegoat, isolated it, and pile on.
Obama knows that his policies are not creating the jobs he promised, so he wants to redirect the blame to "foreigners" who are not playing fair. Unfortunately for the president -- and fortunately for the country -- China's trade surpluses have begun to moderate. In fact, early reports indicate that China ran a trade deficit in March 2010. U.S. exports to China are up 37% year-to-date, with the likelihood of growth for the rest of the year. Were it not for Obama's anti-business policies, including the $4.7 billion in costs that Obamacare has shifted to corporate balance sheets, exports would be even greater.
The fact is that America can compete against China or any other country, but it is naïve to expect that the playing field will be exactly equal. Democrats demand that America's trading partners pay their workers a "fair wage"; that they provide working conditions and benefits that resemble our own; that workers not only be free to organize, but that failure to do so be taken as prima facie evidence of repression; and that currencies be adjusted to eliminate trade imbalances. If these are the conditions upon which the U.S. allows a free exchange of goods, then no such exchange can or will take place. The fundamental assumption of all exchange is, after all, that different producers possess unique advantages.
At present, China possesses a large supply of relatively low-cost labor, though no longer as low in cost as many of its competitors'. The United States possesses the advantages of an educated, high-tech work force and advanced research infrastructure. It also possesses advantages in agriculture, energy, and medical technology. The free exchange of goods and services should result in a net increase of jobs and living standards on both sides.
The Obama administration seems oblivious to all of these facts. It appears to be focused exclusively on short-term political advantage. Obama and his surrogates are working feverishly to sell the notion that China is responsible for the high unemployment rates that are predicted to continue through 2011. In doing so, however, Obama is fueling a trade war that will raise unemployment even higher.
Certainly, the Chinese are fierce competitors, and their low wage standards and management of currency rates give them an advantage. But the low-wage jobs that China has drained from the U.S. did not cause unemployment rates to rise during the 1990s or early and mid-2000s, a period of record low unemployment in the United States. It is only since the election of Barack Obama that economists have begun to speak of a decade-long period of high unemployment ahead, and the reason is not China, but Obama's hostility toward the private sector of the economy. It is no accident that since Obama took office, the metro D.C. area has suffered a loss of 100,000 jobs in the private sector while gaining over 20,000 government jobs. It is Obama's anti-business tax and regulation policy that is killing jobs, but Obama is determined to blame it on the Chinese and other foreign competitors.
In response to what they view as unfair competition, Democrats are attempting to pressure China to revalue its currency upward versus the dollar. In fact, the yuan has already been revalued upward by just over 20% during the past five years, but Chinese exports to the U.S. have increased from $600 billion in 2004 to $1.25 trillion in 2009. Economists are predicting that China will allow the yuan to appreciate by an additional 5% per year over the next several years, which would be constructive, but Democratic pressure for an immediate 30% appreciation is not only impractical, but foolish. Its only result will be to antagonize one of our largest trading partners.
President Obama and Democrats in Congress have embarked on a dangerous game of political scapegoating that puts our trade relationship with China and other countries in jeopardy. The Chinese do not respond well to the sort of crude, high-handed pressure that is now being applied by Obama, Treasury Secretary Geithner, and Democratic leaders in Congress. China controls over $2.5 trillion of foreign currency reserves, much of it invested in U.S. Treasury bonds. It is under no obligation to continue purchasing American debt or even to continue holding the debt it now owns.
One suspects that last week's weak reception of Treasury offerings had something at least to do with Chinese displeasure with an administration that plays politics even with the most important of relationships. One can only hope that the Democrats will not pursue their dangerous game to the point where the mutually beneficial relationship between the U.S. and China is seriously damaged.
Dr. Jeffrey Folks taught for thirty years in universities in Europe, America, and Japan. He has published many books and articles on American culture and politics.