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China Finding Few Friends in Washington as Trade Draws Fire

China, the second-largest U.S. trading partner, is having trouble finding friends in Washington.

President Barack Obama is primed to push for returning jobs from overseas in tonight’s State of the Union Address -- his last before he faces voters in November -- while Republicans seeking to replace him are trying a harsher line. They are vowing to label China a currency manipulator and are talking about a trade war. With a $273 billion trade deficit with China in 2010 and U.S. unemployment at more than 8 percent, China, the world’s second-largest economy, is an easy target for blame.

While assuming the politicians are just using “campaign rhetoric,” Chinese leaders can’t be sure, said Cheng Li, a senior fellow at the Brookings Institution in Washington. China becomes a greater economic threat to the U.S. after each election, and China can no longer assume that the remarks are just used to fire up a candidate’s supporters, he said

“It’s game-changing, and China’s no longer a small player,” Li said. “Politicians like to blame others, but they have to be careful. There could be a backlash.”

While not using the language of his Republican rivals, Obama filed five World Trade Organization complaints since taking office three years ago, compared with the seven that George W. Bush filed from 2001, when China joined the WTO, and the end of his term in 2009.

A factory worker inspects tires at a tire factory in Jining, Shandong Province, China. President Barack Obama’s Commerce Department unilaterally slapped duties on Chinese-made tires. Photo: Keith Bedford/Bloomberg Close

A factory worker inspects tires at a tire factory in Jining, Shandong Province, China.... Read More

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A factory worker inspects tires at a tire factory in Jining, Shandong Province, China. President Barack Obama’s Commerce Department unilaterally slapped duties on Chinese-made tires. Photo: Keith Bedford/Bloomberg

Tire Duties

Obama slapped duties on Chinese-made tires, a step Bush never took. The U.S. has other investigations in progress, and the department said last week it would investigate Chinese makers of wind towers after the Wind Tower Coalition claimed China sells renewable-energy equipment in the U.S. below fair value.

Xi Jinping, China’s vice president, is scheduled to visit Obama in Washington on Feb. 14 to discuss bilateral and regional issues, according to a White House statement yesterday. He also will visit Iowa and California.

Presidential candidates in prior elections have targeted China for economic and human-rights concerns. Democrat Bill Clinton campaigned in 1992 saying incumbent George H.W. Bush coddled the “butchers of Beijing” who ordered the 1989 crackdown on democracy supporters in Tiananmen Square. George W. Bush in 2000 said he would recast U.S. policy to treat China as a “strategic competitor,” not as a partner.

‘Punching Bag’

“China is a convenient punching bag and some candidates can’t resist taking a few swings,” said Nicholas Lardy, a fellow at the Peterson Institute for International Economics in Washington. “But you get in the White House and discover the stakes with China, and the campaign rhetoric goes by the wayside.”

After early tensions, including the collision of a U.S. spy plane and a Chinese fighter jet, Bush, focused on the Sept 11 terrorist attacks, eased his rhetoric, urging China to appreciate the value of its currency without forcing the issue.

In his 2008 campaign, Obama said China manipulated its currency and vowed to use all means to force change. More than three years later, he has declined to act against China.

The U.S. Treasury Department said Dec. 27 in its twice- yearly report on global currencies that China’s yuan is substantially undervalued and the U.S. will “press for policy changes that yield greater exchange-rate flexibility.”

China’s state-run Xinhua News Agency replied in a commentary that the U.S. should move beyond the “useless, meaningless” quarrel over the exchange rate.

‘Like a Fiddle’

The U.S. Senate voted in October on a measure aimed at punishing China for maintaining an undervalued currency. The House hasn’t taken up the legislation and Obama doesn’t have a position on the measure.

“People who have looked at this in the past have been played like a fiddle by the Chinese,” Mitt Romney, the Republican presidential candidate and former Massachusetts governor, said in an Oct. 11 debate. “The Chinese are smiling all the way to the bank, taking our currency and taking our jobs and taking a lot of our future.”

It isn’t just currency spurring Republican ire with China. Failure to protect U.S. intellectual property and interests has been used in campaign speeches.

“I think we’re going to have to find ways to dramatically raise the pain level for the Chinese cheating,” Newt Gingrich, the presidential candidate and former U.S. House speaker, said in an Nov. 9 debate. Action is needed against computer hackers and those who steal intellectual property, Gingrich said.

Reversing Course

Wang Baodong, a spokesman for the Chinese embassy in Washington, didn’t respond to a message seeking comment on the campaign comments.

The Republican candidates haven’t said anything about China or the nation’s policies that pose difficulty in reversing course, Stephen Wayne, a political science professor at Georgetown University in Washington, said in an interview.

China isn’t enough of a campaign issue that the public will hold the candidates to promises they make, such as George H.W. Bush’s 1992 “read my lips, no new taxes” pledge, Wayne said. Voters this year are more concerned about jobs, he said.

U.S. industries say the government isn’t doing enough to let companies compete with China. SolarWorld AG (SWV)’s U.S. unit claims the solar-energy industry is being harmed by China’s cash grants, discounts on raw materials, preferential loans and tax incentives. The U.S. is investigating the complaint.

Geithner, Bernanke

U.S. Treasury Secretary Timothy F. Geithner has said a rise in the yuan’s value since mid-2010, at 10 percent, is too slow. Failure to allow faster appreciation impedes a shift in demand toward emerging markets that would bolster the global economy, U.S. Federal Reserve Chairman Ben S. Bernanke said.

The currency contributed to a $26.9 billion trade deficit the U.S. had with China in November, more than half the total $47.8 billion gap with all nations.

“They will recognize that if they cheat, there is a price to pay,” Romney said in an Oct. 11 debate. “We’re not going to have a trade war, but we can’t have a trade surrender either.”

Rick Santorum, a former Pennsylvania Republican senator and presidential candidate, said, “I don’t want to go to a trade war, I want to beat China.”

China’s leaders have gotten more savvy about U.S. campaigns, said David Spooner, a lawyer with Squire Sanders and a former assistant Commerce secretary for import administration.

“The Chinese government can get alarmed at the general atmosphere, but I don’t think they take what any one candidate seriously,” Spooner said. “They think to themselves, we have seen this play before. Once the election is over, whoever is elected, tones down the rhetoric.”

Candidates such as Romney talk tough, though there is little likelihood he will carry out his promise to stand up to China and label it a currency manipulator, Wayne said.

“They create a straw man to knock down -- a boogeyman,” Wayne said. “They create foes to project a strong image. It used to be Russia and now it’s China.”

To contact the reporter on this story: William McQuillen in Washington at bmcquillen@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net; Steve Geimann at sgeimann@bloomberg.net

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