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 Richmans' Trade and Taxes Blog

Romney on Trade
Jesse Richman, 9/7/2011

Romney's new jobs plan has an entire section devoted to trade policy.  Romney begins by arguing for continuing negotiation and ratification of free trade agreements, arguing that once oil is excluded (why this should be excluded isn't explained or justified) the U.S. runs a trade surplus with the nations it has joined in  such agreements. 

 He also addresses China.  First, on the shortcomings of the Obama approach.

Dropping Our Guard

President Obama has also singularly failed in handling commercial relations with China. He came into office with high hopes that displays of American goodwill toward Beijing would lead to better relations across all fronts. Predictably, the goodwill has not been reciprocated; China is driven by its own interests, not by appeals to its sentimentality. Having tried and failed with "engagement," the Obama administration now behaves as if the United States has no leverage in dealing with a country that routinely steals our designs, patents, brands, know-how, and technology—collectively, our "intellectual property." Entirely fake Apple Stores operate openly in Chinese cities. It is hard to be more brazen than that.

This is not all happenstance. Rather, it is the result of a deliberate policy by the Chinese government that seeks to build up its economy by piggybacking on Western technological success. On many occasions, Chinese companies have simply reverse-engineered American products, with no regard for the patents and other protections of intellectual property rights that are crucial to our own economic well-being. The Chinese government facilitates this behavior by forcing American companies to share proprietary technology as a condition of their doing business in China. A recent study by the U.S. Chamber of Commerce reports that international technology companies consider these practice to be "a blueprint for technology theft on a scale that the world has never seen before."

China’s unfair trade practices extend to the country’s manipulation of its currency to reduce the price of its products relative to those of competing nations such as ours. While the extent and impact of the manipulation is widely debated, the practice provides an invisible subsidy to Chinese goods sold internationally and an invisible tariff on other nations attempting to sell in China. Despite making gestures to the contrary, China’s government often excludes foreign goods from consideration for its government purchases. And it uses a variety of unfair practices—for instance, inventing regulations and standards that only Chinese companies can meet, and artificially lowering costs for Chinese companies— to tilt the playing field in its favor. Instead of responding forcefully, the Obama administration has acted like a supplicant. Having borrowed hundreds of billions of dollars from Beijing to pay for its agenda, it has placed America in a weak position at the very moment when we need to stand tall.

The Romney plan then outlines a few steps for dealing with China on trade.

Impose Targeted Tariffs or Economic Sanctions

Mitt Romney believes we need to consider the use of targeted unilateral and multilateral sanctions. For instance, if the United States identifies a Chinese firm or industry that is relying on unfair practices or misappropriated American technology for its competitive advantage, we should be in a position to impose punitive measures in response. If China makes it a priority to strong-arm Western corporations in industries with particularly valuable technologies, we should join with our allies to ensure that it does not obtain the technology transfers it seeks.

Designate China a Currency Manipulator and Impose Countervailing Duties

Current U.S. law requires that the Department of the Treasury release a biannual review in which it identifies any countries that are manipulating their currency to gain an unfair advantage. The Department of Commerce also has the power to find that Chinese currency policy constitutes an unfair subsidy to Chinese exporters, and to assess countervailing duties on Chinese products. The Obama administration has declined to take either action, effectively accepting China’s problematic practices. That acceptance has to end. If China fails to move quickly to bring its currency to fair value, the Department of the Treasury in a Romney administration will designate China a currency manipulator and the Department of Commerce will impose countervailing duties.

Insist on Reciprocal Government Procurement

China is not a member of the WTO’s Government Procurement Agreement (GPA). However, it has declared its intent to join. The GPA forbids member nations from discriminating against one another’s products and services in the course of government procurement. The Chinese government, by itself one of the world’s largest consumers, has failed to make good on its commitment to accede to the GPA, and continues to strongly favor domestic Chinese providers. There is no reason for the United States to tolerate this state of affairs. Until China joins and abides by the GPA, a Romney administration will respond in kind by ending U.S. government procurement of Chinese goods and services.

***

The United States does not have to accept forever the practices that have led to a huge and seemingly perpetual trade deficit with China. We have opened our economy to China, and China must be persuaded to extend the same privilege to us. China’s export-driven economy desperately needs access to our markets and innovations, and we have the leverage to demand that it competes on fair terms in return and provides similar access to its market for U.S. exporters. A Romney administration will work with Congress and our international partners to alter China’s behavior. The Reagan Economic Zone will be a key instrument in that effort, offering China an attractive reward for better behavior as an alternative to aggressive responses to continued intransigence.

The time has to come to lay out a series of steps that China must take to become a responsible member of the global economy. And the time has also come to lay out the consequences that would accompany its failure to make rapid progress toward that end. Despite what the Obama administration appears to believe, the United States is working from a position of strength. Mitt Romney understands that fundamental point and all that follows from it. He will seek to right our trade relationship with China and strengthen our commercial ties with the rest of the world. Nothing less than economic recovery is at stake.

Although the plan has a graphic showing how unequal trade is between China and the US, it does not, unfortunately discuss any direct steps aimed at forcing China to accept more balanced trade.  It does, however, suggest that even relatively pro-corporate Republicans like Romney are beginning to adjust their views on trade with China -- to recognize that the illusions of past U.S. trade policy towards China were illusions.

Comment by Howard Richman, 9/8/2011:

I love this quote: "He will seek to right our trade relationship with China and strengthen our commercial ties with the rest of the world. Nothing less than economic recovery is at stake." He's tying Obama's failed economic recovery to Obama's failed trade policy. This is huge!

Comment by M, 9/9/2011:

Mitt Romney is a very smart man. He is correct that corporations are people, but as Pat Buchanan pointed out - corporate America's interests conflict with our Republic's interests. In as much as Mr. Romney fails to see this distinction, and offer workable solutions to international trade problems, I suspect it is a case of willful ignorance. 

Comment by Bruce Considine, 9/27/2011: Have you looked at Buddy Roemer's (Republican long, long shot) position on trade?