Leverage vs. Status Quo
Posted by SCapozzola on May 19th, 2008
In today’s Wall Street Journal, reporter Bob Davis notes the efforts that AAM has made to press presidential candidates on unbalanced trade with China. Davis mentions AAM’s Town Hall meetings, which pushed voters to ask the various candidates tough questions regarding China’s continued cheating on trade agreements.
AAM pressed the ‘China Cheats’ issue throughout the recent primaries in such industrial states as Ohio, Pennsylvania, and Indiana. And after feeling the heat from voters, the candidates responded, with both Sens. Obama and Clinton making strong statements in favor of concerted action on China.
At an April 14 candidate forum sponsored by AAM, Sen. Clinton was asked if she would cite China for currency manipulation. In response, she said, “I certainly intend to do so.”
Likewise, at the same April 14 forum, Sen. Obama said, “China must stop manipulating its currency because it’s not fair to American manufacturers, it’s not fair to you, and we are going to change it when I am President.”
With both candidates stepping up their rhetoric, advocates of U.S. manufacturing are hopeful that a shift in policy may occur. However, Davis suggests in his Wall Street Journal piece that a President Obama might not follow through with the forceful action on which he campaigned. As Davis noted: “Since at least John F. Kennedy, presidential candidates have campaigned as tough on trade and then governed as free traders. Some business leaders are expecting the same if Barack Obama makes it to the White House…Don’t count on it.”
This morning, Bloomberg News’ Mark Drajem pondered a similar scenario: “The presidential candidates’ rhetoric in recent weeks signals that a tougher U.S. policy toward China may be in store under a new administration. History suggests otherwise.”
Exactly what, then, might a Clinton or Obama administration offer for a U.S. industrial sector that has seen 3.5 million manufacturing workers laid-off since 2000? Drajem notes that both Bill Clinton and the current President Bush were critical of Beijing when campaigning, and “promised a harder line.” But both backed off after “confronting the realities of governing, which today include China’s role as the second-largest foreign owner of U.S. debt…and as a central partner in efforts to contain North Korean nuclear ambitions.”
While it’s true that China helps to finance U.S. debt, and holds roughly $500 billion in U.S. Treasury securities, China also relies on the U.S. to serve as its chief export market. Drajem points out that in 2007, China surpassed Canada to become the largest exporter to the U.S., selling $322 billion in goods. With the threat of labor strikes and civil unrest ever-present throughout China, officials in Beijing are under constant pressure to ensure that manufacturing jobs keep pace with a restive population.
Noting this economic interdependency, one could ask why U.S. officials so greatly fear upsetting the Chinese apple cart. Being the market of last resort, and China’s top customer, gives the democratic United States of America some interesting and forceful leverage over a repressive regime.
The heavy question, then, is whether the president elected in November 2008 will choose to use that leverage, or to maintain a status quo that has led to a continuing erosion of the U.S. industrial base?
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