Published on October 19th, 2011 | by Larry O'Bryon

Build Trade Relations with China, Not Trade Barriers

 

History cannot help us see the future, but it can help us avoid the mistakes of the past. The Senate passed, and the majority of the House would support, legislation that will penalize China for keeping its currency undervalued and enable trade tariffs, but risks ill will and a trade war with China. This is a mistake.

We should not be in the scape-goating business, but should take care of our own affairs. The United States will grow and add jobs as we adopt policies and pass legislation that support our economy. Imprudent protectionist measures move us in the wrong direction.

The relevant history lesson is the Smoot-Hawley Tariff Act of 1930, which contributed to the length and severity of the Great Depression. Putting up trade barriers and risking a trade war with China is fraught with danger in our weak global economy.

The global engines of economic growth are the United States, Europe and Asia, which is led by China. In 2010 the United States imported over $360 billion of goods from China. We in turn exported over $90 billion of goods to China, our third largest export market and one that continues to grow as China’s economy expands. An indication of the size of the U.S. market and its importance to U.S. companies – GM now sells as many cars in China as it does in the United States. A disruption of these trade flows would be devastating.

China’s involvement with the United States goes much further than our bilateral trade. Through its purchase of U.S. Treasury bonds, it has been one of our leading creditors, enabling historic low interest rates as we work through our federal deficits and national debt challenges.

Given the size of our trade deficit, many Americans think that China’s management of its currency exchange rates has resulted in a significant loss of manufacturing jobs in the United States. However, there are many causes of our current economic challenges, of which China’s relative currency weakness is not the critical one. In fact, China has let its currency strengthen 30 percent against the U.S. dollar since 2005. Continuing diplomatic pressure and positive engagement with China should continue this trend, without coercive legislation.

We need to have a constructive trade relationship with China, our most significant foreign competitor. Passing legislation that is disruptive to our mutually beneficial relations will not of itself bring back manufacturing jobs to the United States. Instead, we should raise trade issues directly with China’s leadership, resolve them if possible, and legitimize any disputes by working through the WTO.

We also need to focus on fixing our own serious fiscal challenges. This means reworking our tax code for individuals and corporations. We need to allow our multi-national corporations to repatriate their foreign cash holdings — tax free — to spur investment and hiring at home. We just passed (finally) free trade agreements with South Korea, Panama and Colombia. These measures and others that directly address the structural issues in our economy are how we will create more jobs.

Although we will continue to have challenges with a rising China, we should not exacerbate them by our own actions and shortsighted policies. The Currency Exchange Rate Oversight Reform Act of 2011 is unwise and dangerous. To their credit, the House Republican leadership understands this fact and should keep this bill Dead on Arrival.

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2 Responses to Build Trade Relations with China, Not Trade Barriers

  1. Trevor W. says:

    China has zero respect for intellectual property. They will counterfeit our goods and undercut us until we perish. The United States’ economy is overly dependent on trade with China. This puts us at a strategic disadvantage. The US is correct in calling China a “currency manipulator”, but so are we with the continued printing of unbacked dollars. The Yuan isn’t growing in strength more than the dollar is weakening die to our own monetary policy. And who says US-China trade is beneficial to the US? Ross Perot had it right when talking about NAFTA- “there will be a giant sucking sound” of US jobs going abroad. They still are, and kissing up to China will not bring them back.

  2. Trevor W. says:

    China has zero respect for intellectual property. They will counterfeit our goods and undercut us until we perish. The United States’ economy is overly dependent on trade with China. This puts us at a strategic disadvantage. The US is correct in calling China a “currency manipulator”, but so are we with the continued printing of unbacked dollars. The Yuan isn’t growing in strength more than the dollar is weakening die to our own monetary policy. And who says US-China trade is beneficial to the US? Ross Perot had it right when talking about NAFTA- “there will be a giant sucking sound” of US jobs going abroad. They still are, and kissing up to China will not bring them back.

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