There are plenty of reasons to criticize China. It has been slow to protect the intellectual-property rights of U.S. and other foreign companies. It has not opened its financial markets much to outside investment. It promotes "national champions" in its computer, auto, and software industries. But the China-bashing now under way in Washington has little to do with serious economic criticism.
As the Presidential-election season heats up, politicians in both parties are scapegoating China for the jobless recovery. To curry votes in Midwestern and Southern states, they are blaming China for the sharp decline in manufacturing jobs rather than the structural economic changes that are really behind them. As a result, they are pressing Beijing to revalue the yuan to curb exports or face a 27.5% tariff on Chinese imports into the U.S. These politically driven measures are economically misguided and could boomerang.
For starters, U.S. consumers and businesses benefit mightily from low-cost imports. Moreover, China is the fastest-growing U.S. export market. America's exports to China are up 21% year on year, compared with 2% to the rest of the world. Thanks to double-digit jumps in real annual wages and fast-growing retail sales, China's domestic market is booming. General Motors (GM ) Corp. recently sold more cars in China than in Europe. And China imports more than Japan.
Foreign-exchange rates have little to do with the shift of U.S. manufacturing jobs to China. U.S. companies sent production to China in the '90s when both the yuan and the dollar (which are linked) were strong relative to the yen and European currencies. Today, they are still sending production to China as the yuan and the dollar weaken. Does anyone really think that a 30% revaluation will bring the toy industry back to the U.S.?
The fact is, an integrated Sino-American economy linked by business and finance is emerging. China is the supply chain for Corporate America. Parts are made around the world, assembled in China, and shipped to the U.S. by American companies under such names as Dell (DELL ), Boeing (BA ), and General Electric (GE ). In fact, 10 of the top 40 exporters from China are U.S. companies. Without China, American corporations would be less efficient, less profitable, and would pay lower wages at home.
And without Chinese money, the U.S. would be unable to finance its budget deficit. The failure of Americans to save requires the U.S. to import huge sums of capital. Private overseas lenders have cut their buying of U.S. stocks and bonds. China's central bank has stepped in, buying billions in Treasury paper and helping to keep U.S. interest rates low. China is playing a major role in the U.S. recovery, just as the U.S. is boosting growth in China.
Certainly, China should live up to its obligations to the World Trade Organization. But the U.S. and China have created a mutually beneficial economic synergy. It should not be undone by political expediency or demagoguery. Shame on Republicans and Democrats alike. They should know better.