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Republicans' Misguided China-Bashing

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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Here's how some Republican presidential candidates think President Barack Obama should deal with the president of China, Xi Jinping. Scott Walker says the White House should cancel next month's state visit to the U.S., Xi's first. Marco Rubio advises letting Xi come for low-key working meetings, but not a state visit. Donald Trump wants Obama to take Xi to McDonald's instead of feting him at a lavish official feast. 

Provoked by the week's China-themed market turmoil, Republicans have been trying to one-up each other with yet-more-aggressive approaches to China. They seem to agree on at least one thing: China-bashing is a vote-getter.

QuickTake China's Managed Markets

That may be, but their policies are as muddled as their politics are muscular. In a Wall Street Journal op-ed and speech, Rubio said he would increase the Pentagon's budget so the U.S. military can better challenge China in the "air, sea, ground, cyber space and even outer space." Rubio would insist that China follow free-market principles, and he'd bar Chinese officials who violate human rights from getting visas to visit the U.S. 

In a similar vein, Walker said his views had hardened in recent weeks because China devalued its currency and had hacked into U.S. government databases. Like Rubio, he would restore military spending cuts; begin an aggressive shipbuilding program; work more closely with allies Japan, Australia and South Korea; and oppose human-rights violations.

Even when they're offering policy prescriptions (as opposed to just complaining of what they see as Obama's weaknesses), the Republican candidates take aim at China as if it's still the fast-growing dynamo it had been for the last few decades. Yet China is weaker, having been hit by an economic cyclone. Its true growth rate, probably around 5 percent, has slowed dramatically from the near double-digits of a few years ago. Its banks are overleveraged and undercapitalized. Exports are declining. Its stock market and real estate bubbles are bursting simultaneously. 

But to the Republican candidates, China and President Xi are somehow as much of a threat when they're overly weak as when they're overly strong.

China's cache of U.S. Treasury securities provides a good example of GOP confusion. New Jersey Governor Chris Christie scolded Obama on Monday for relying on China's purchases of U.S. government debt to fund the deficit. Such reckless borrowing, Christie said, leaves the U.S. vulnerable to China's whims. 

What most worries Christie is that China one day will decide to sell all of its Treasuries to punish the U.S. by driving up the cost of borrowing. The problem is, China has been selling its dollar reserves and the result has been … nothing much. 

The latest data show that China controls about $1.48 trillion in U.S. sovereign debt and has sold at least $106 billion of that in the last few weeks as it tries to prop up the falling yuan. The interest rate on the benchmark 10-year Treasury note, however, remains near its average for the month, and close to a historic low. 

China's mid-August yuan devaluation has also confounded the Republican field. The candidates say they want China to follow free-market principles, yet they accused China of currency manipulation when it allowed the market to play a larger role in determining the yuan's exchange rate. When the yuan kept falling, and China sold dollars to prop it up, the Republicans (and some Democrats) accused China of dumping Treasuries to undermine the U.S. economy. It's a damned-if-you-do, damned-if-you-don't policy. 

China-bashing isn't a novel campaign strategy. As Bloomberg's Mike Dorning points out in an article Friday, we've seen this movie before. Ronald Reagan in 1980 condemned his predecessor, Jimmy Carter, for normalizing relations with China and abandoning Taiwan. As president, Reagan never reopened the Taiwan embassy. Bill Clinton campaigned in 1992 against doing business with the "butchers of Beijing" before negotiating China's entry into the World Trade Organization as president. 

Even candidate Obama played the China card when he accused President George W. Bush of being a "patsy" for not punishing China for manipulating its currency. In seven years as president, Obama has never formally accused China of currency manipulation. Campaign bluster aside, it's unlikely that a President Christie, Rubio, Trump or Walker would, either.

(This article has been updated with a correct photo of Chinese President Xi Jinping.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Paula Dwyer at pdwyer11@bloomberg.net

To contact the editor on this story:
Jonathan I Landman at jlandman4@bloomberg.net