Obama and Romney draw hard line on China in final presidential debate
Published: Wednesday, October 31, 2012
Updated: Wednesday, October 31, 2012 21:10
During the third and final presidential debate on Monday, Oct. 22, President Obama and challenger Mitt Romney engaged in a familiar battle over which candidate, if elected, would take a tougher stance on China. The President referred to China as an “adversary,” noting that his administration has brought more trade cases against China than both Bush administrations combined. Romney, meanwhile, stressed that China will have to play by established international trade rules if it wants to maintain and advance its partnership with the United States. It is not unusual for presidential candidates to trash-talk global competitors during election season, even when their real intentions are less aggressive than they indicate. But in the case of the United States and China, taking a harder line on the rising East Asian power might not be such a bad idea.
The United States needs to command both fear and respect from China, in case of rising future tensions over the balance of power in East Asia. Romney indicated during the debate that China shares the United States’ desire for a stable world order; its current focus lies primarily in domestic issues, so peace and stability provide the perfect environment for internal growth. That focus may change over time, however. China is rising—not only economically, but also militarily. While the United States currently dominates East Asia in terms of military power, today’s balance of power will be different five years down the road. As China gains relative power, its rising military capabilities may allow it to challenge the United States. As a result, its focus may shift away from internal growth and toward attaining regional or global hegemony. During the debate, the President named the United States a Pacific power. But if the United States wants to maintain its global hegemony, it cannot behave deferentially toward China, economically or otherwise. Instead, the United States needs to stand its ground by parading its military might and holding China accountable to international trade agreements.
The United States also needs to take a harder line on China in order to reduce unemployment at home. Although China’s currency has recently strengthened in relation to the dollar, China has traditionally kept its currency artificially low in order to give its exports a competitive advantage in the global market. This currency manipulation displaces U.S. factory jobs, since U.S. consumers end up relying on cheap Chinese imports rather than buying more expensive domestic products. The United States needs to pressure China to appreciate its currency even further, so that the U.S. unemployment rate can continue its downward trend.
Some analysts worry that taking a more aggressive stance toward China would raise the possibility of a trade war between China and the United States. During the Oct. 22 debate, moderator Bob Schieffer asked Romney if he shared that concern. Schieffer was hinting at a broader question: Does the United States depend on its economic relationship with China too much to behave aggressively toward it? To put the answer simply, it does not, because China depends on the United States more than the United States depends on China. Meaning yes, China may be the largest holder of U.S. government debt but a closer look shows their stake in U.S. debt gives them little real political leverage. Theoretically, China could hurt the U.S. economy by selling off some of the U.S. government debt it owns, thereby weakening the value of the dollar. China, however, runs a large trade surplus with the United States, meaning that it exports far more goods than it imports. As a result, China holds massive dollar reserves. A weaker U.S. currency, therefore, would also damage the Chinese economy by diminishing the value of its dollar assets.
That is not to mention what selling U.S. government debt might do to China’s trade relationship with the United States. As mentioned earlier, the U.S. economy might benefit from reducing its imports from China, since it would result in a lower unemployment rate. China, on the other hand, has structured its export economy largely around the voracity of U.S. consumers. Without the U.S. market to fuel its economy, China would find itself in deep trouble. China might make a hobby out of threatening to sell U.S. debt, but it has questionable incentives to follow through.
Not only does China’s accumulation of U.S. government bonds give it little political leverage, but it also puts China at the mercy of the U.S. economy. China’s assets are tied up in U.S. government bonds, and it has a lot to lose—over $1 trillion, to be specific. China depends on the United States to give it a return on its investment. Should the United States default on its debt, China would lose big. China is literally invested in United States’ ability to pay back its bonds, so to provoke the United States into any type of conflict would not benefit China’s own self-interest. Right now, the last thing China wants is a fight.
The United States can afford to be more aggressive in its stance toward China. It might finally be time to turn some of that “tough on China” rhetoric into actual, real-life policy.