How Bashing China Won’t Make Any Difference

With politics being as polarized as they are, it always nice to see a rare bit of bipartisanship in Congress. It’s just a shame that what unites the two parties is often ill-conceived and populist in nature, and nothing meets both criteria so well as China bashing.

There is no doubt that, lately, China has become a byword for American decline and economic insecurity. From our politicians to public interest groups, the consensus among policymakers seems to be that China is either a direct cause for all this country’s ills or a rapidly rising competitor whose gain is automatically our loss. This sentiment however, like the tariffs and China bashing that it predicates, is at worst dangerously distracting, and at the very least unhelpful.

Prior to adjourning for the midterm elections, Democrats and Republicans in the House of Representatives passed a bill aimed at retaliating against China for undervaluing its currency. This would’ve likely translated into higher tariffs on Chinese exports, though last I checked, the bill has remained stalled in the Senate.

In any case, the House was hardly alone in its concerns on China. Timothy Geithner, the United States Secretary of the Treasury, pressured the International Monetary Fund, which oversees the global financial system, to urge China to take on a “more flexible, more market-oriented exchange-rate management” system. This is basically a fancy way of telling China to stop keeping its currency so cheap.

In these past mid-terms elections, many candidates ran ads attacking opponents for allowing jobs to be shipped to China, or for otherwise being too soft on the Chinese. Citizens Against Government Waste, a self-described government watchdog, ran an ad depicting a future where China is basically running the US.

The idea is that if Chinese exports become more expensive, domestic producers of similar goods could finally compete in an even playing field, providing jobs and invigorating the economy. If only it was that simple (economics rarely is).

To be sure, China isn’t innocent. Its government does indeed keep the cost of its currency artificially low, so as to keep its vital exports cheap and it’s economy globally competitive. From a national-interest and strategic perspective, this actions makes sense, whatever harm it may do to other manufacturers. Certainly, such cheap exports do cause some damage to domestic production – up to a point. There is no denying that manufacturing has declined precipitously in this country. And it’s certainly true that most of what we once made is nowadays being built in China.

But Chinese dominance in manufacturing is a by-product of our decline, not the cause of it. After all, manufacturing has been weak for decades, long before China’s rise began in the 1990s; they merely sped up the process. Forcing the Chinese to make their goods more expensive or slapping on tariffs to that effect, won’t suddenly revitalize our economy.  At best, it will just shift the problem somewhere else. Vietnam, Bangladesh, the Philippines, and a slew of other nations all have plenty of cheap labor and even cheaper currency.

We should also take a lesson from history. Back when Japan was in China’s place and US manufacturing was beginning to peak, we pressured them to raise their cheap currency too, for the same reasons (and with the same expectations).  Obviously, it didn’t work, since industrial activity remains in decline to this day.

At the end of the day, the problem with manufacturing is a domestic issue that requires a domestic solution. It’s unrealistic and unfeasible to expect other countries to change their ways for our sake. Like it or not, globalization is a reality that must be adapted to, not fought against.  We should focus less on foreign scapegoats and more on supporting polices that will strengthen industry at home –more investment in infrastructure and green technology, support for job training programs, and incentives for companies to keep jobs in the US, to name a few ideas.

We need to tap into the innovation that has long made us the world’s most dynamic economy, rather than distract ourselves with petty trade wars. Too bad that, as with most things, that’s far easier said than done. How to become more innovative and competitive is a discussion for a whole other post.

 

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