With the election only weeks away, it should come as no surprise that President Barack Obama and Republican challenger Mitt Romney have taken to bashing Beijing.
Attacking China’s export-subsidy machine is guaranteed to win applause at campaign stops in Ohio and other Midwest industrial swing states, where resentment of Chinese competition in manufacturing runs deep.
China’s efforts to promote its export sector with cash grants, below-market loans, preferential tax treatment and free use of government-controlled property make a worthy target. No stump speech in Cleveland or Columbus is complete without a promise to level the “uneven playing field” of trade with China.
That sentiment has a basis in reality. The problem, as we see it, is that neither candidate is willing to remind voters of the benefits that accrue to the U.S. economy from free trade, even free trade with China, and the dangers of an all-out trade war.
The Obama administration on Monday filed a complaint with the World Trade Organization that accuses China of illegally subsidizing the export of automobiles and auto parts. The subsidies put U.S. manufacturers at a disadvantage and ultimately reduce the number of U.S.-based jobs in those industries.
As the trade case was filed, the president took to the campaign trail to portray himself as a fighter for the rights of American workers. Romney denounced the WTO case as “too little too late” and promised to fight even harder against China. The Chinese filed a case of their own with the WTO, challenging American duties imposed on imported appliances, paper and other goods that get foreign subsidies.
We’re not opposed to untangling these disputes through the WTO. Free trade requires consistently enforced rules to keep it fair, just as any free market does. The WTO, bureaucratic though it is, provides a workable if slow-moving forum for resolution.
We hope, however, that Obama and Romney resist the urge to resort to protectionism. The U.S. has everything to gain from reducing trade barriers and promoting the international flow of tariff-free goods. Trade liberalization will create jobs in the U.S. Trade crackdowns can lead to a disruptive cycle of retaliation that hurts more than it helps.
The latest U.S. case focuses on artificially cheap Chinese exports, which hurt the U.S. automotive industry but not U.S. shoppers. Consumers buying the goods benefit by paying a lower price, and the range of activities needed to bring imports to market — everything from shipping to retailing — creates jobs.
The most damaging trade barriers for U.S. commercial interests are found in China’s domestic market. Subsidies and regulations that entrench certain Chinese firms prevent rival American goods and services from competing for business inside the Asian nation. State control has made it impossible for foreign companies to take the lead in a range of industries. Further, the theft of intellectual property discourages trade for cutting-edge foreign goods. No one wants their hot new product reverse-engineered and knocked off in short order. The Chinese policy of a weak yuan-to-dollar exchange rate doesn’t help either.
Prying open China’s domestic market to foreign competition should be the top U.S. trade priority. Achieving that goal would pay off in every way for American companies and their employees. It’s a smarter strategy than seeking to shut down the flow of Chinese exports to the U.S.
Scapegoating Beijing for a weak U.S. job market makes a good sound bite on the campaign trail, but it won’t put the U.S. back on the path to growth and prosperity. Free trade will. The folks in Washington should pick their targets carefully.
