President Obama bowed to Chinese President Hu while they shook hands at the beginning of the April 12-13 Nuclear Security Summit in Washington. President Hu did not bow back. The rest of the summit played out the same relationship.
First, Hu rejected Obama's request that China stop using currency manipulations to steal American industry. At a press conference, President Obama tried to paper over the slight. He said,
With respect to the currency issue, President Hu and I have had a number of frank conversations. As part of the G20 process we all signed on to the notion that a rebalancing of the world economy would be important for sustained economic growth and the prevention of future crises. And China, like the United States, agreed to that framework. We believe that part of that rebalancing involves making sure that currencies are tracking roughly the market and not giving any one country an advantage over the other.
Next, Hu stiffed Obama's request for sanctions against Iran. Instead, China started shipping gasoline, giving Iran the key import that it needs. The following begins a Reuters story:
State-run Chinaoil has sold two gasoline cargoes for April delivery to Iran, industry sources said on Wednesday, stepping into a void left by fuel suppliers halting shipments under threat of U.S. sanctions.
By bowing to President Hu's intransigence, President Obama is announcing that he will let Hu continue to de-industrialize the United States and that he will let totalitarianism replace democracy and the free market as the world's dominant social and economic system. President Hu is refusing to adjust China's currency to the market level so that he can continue to steal American manufacturing industries. He is shipping gasoline as part of his continuing support to the world's most repressive regimes in North Korea, Burma, Sudan, and Iran.
President Obama need not give away America's future and the world's future to China. All he would need to do to change the balance of power is invoke the WTO rule which lets trade deficit countries require balanced trade. He could impose a tariff proportional to the trade deficit on all Chinese imports. This would impose, in effect, a revaluation of the Chinese yuan with respect to the U.S. dollar. From then on, Chinese trade manipulations would fail. China, to maintain its level of imports to us, would have to import more from us. Instead, Obama is letting Hu reduce China's imports from the United States. On April 13, China's Commerce Ministry announced that "it had imposed duties on imports from the U.S. and Russia of a type of steel used in the power sector." In February, Hu imposed tariffs up to 105% on American chicken products.
The Chinese government excludes American products from its "catalogs" of products eligible for consumer subsidies, government purchases, and/or purchases by Chinese government-owned businesses. As a result, in 2009, even though China's economy grew at an 8.7% clip, China's imports from the United States decreased. This year, China's economy is expected to grow at a 10%-13% clip, yet in February, the latest month available, China's imports from the United States again decreased.
A century ago, President Theodore Roosevelt announced American policy as "Speak softly but carry a big stick." President Obama appears to be announcing a new American policy: "Speak softly and throw your stick away."
The authors maintain a blog at idealtaxes.com, and co-authored the 2008 book Trading Away Our Future: How to Fix Our Government-Driven Trade Deficits and Faulty Tax System Before it's Too Late, published by Ideal Taxes Association.