Seeking Meaningful U.S./China Trade Reform
When an American president goes to China, topics of conversation are rarely in short supply. President Obama's current visit is no different: Security issues bubbling in the South China Sea, charges of cyber-hacking flying both ways, and stultifying engagement on the challenges and realities of climate change; laid before him is a bona fide Thanksgiving dinner of geopolitical indigestion.
But what should cause a real peptic ulcer for the president is the state of our two countries' deeper economic relationship, which, from the American point of view, has grown nothing short of unsatisfactory.
In the roughly 15 years since the United States normalized trade relations with China, we have faced a surge of Chinese imports and chronic overcapacity in Chinese industries (like steel); we've watched promises made by China's communist government to remove itself from the business of state-owned enterprises go unfilled (turns out these communists are wonderful capitalists); and we've dutifully (and quietly) noted that appreciation of the still-undervalued renminbi has essentially stalled. Consequentially, we've also watched millions of once-middle class American jobs relocate to Asia.
China's government refers to its interactions with Washington as a "Great Powers Relationship." But it won't be a stable one if we don't address this imbalance, which manifested as a $318 billion trade deficit in favor of China in 2013. This September's $35 billion deficit was the largest monthly sum ever. Those deficits are trending upward. It will only grow harder to persuade an American public anxious about a recovery that has seen unemployment fall but wages stagnate that this path of polite appeasement is the right one.
This conversation is one the Obama administration remains largely unwilling to have, save for the stray trade enforcement case, indictment of PLA cyber spies, or rhetorical device like the latest Treasury report on exchange rates. But even there, the White House will fold itself into knots to avoid saying the phrase "currency manipulation."
Simply put: Surgery is required, and this administration still waffles over reaching for the Prilosec.
Getting on with that surgery - demanding that China end government-backed corporate espionage, stop forcing technology transfer on American firms operating within its borders, and remove its thumbs from the currency scales, among other mercantilist trade practices - would do a lot to assuage those concerns. What's more, it will ultimately benefit China, as its government tries to develop a middle class to propel an economy based on domestic consumption. The average Chinese citizen wants more purchasing power. That means its currency will have to rise. But a rise will require external pressure before it will take place, and that will have to come from us, America, China's biggest trading partner and customer.
Until there's a willingness to talk about these issues, and put real consequences behind them - like restricted access to the U.S. bond market and large-scale trade actions - it will make it hard to accomplish meaningful reform to the U.S.-China economic relationship. The status quo serves neither American citizens nor the aspirations of the Chinese consumer. So do we want more of the same? Or will the approach change, even slightly, in this week's bilateral meetings between China's leaders and President Obama? I'll keep the antacid on hand, either way.
