Bridges Weekly Trade News DigestVolume 16Number 28 • 18th July 2012

US Presidential Candidates Zero in on China Trade Practices

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With November’s US presidential election drawing ever nearer, candidates have spent the last several weeks out on the campaign trail exchanging barbs over their respective approaches to the economy, with a particular focus on the country’s trade relationship with China. Back in Washington, some trade observers are questioning whether efforts to enact a new Farm Bill and remove decades-old trade restrictions on Russia will actually lead to a result before Congress adjourns for its annual August recess.

The past few weeks have seen tensions ratchet up between President Barack Obama and his Republican competitor Mitt Romney, amid competing claims over which candidate will do the best job in improving the US economy, particularly in terms of reducing unemployment.

From the beginning of the election campaign season, presidential contenders have been working hard to convince voters that they are the country’s best bet for tackling the perceived negative impacts brought on by “unfair” Chinese trade practices. Recent allegations have focused on who will prevent China from, as both candidates have put it, “taking US jobs,” with candidates accusing each other in recent political ads of being the biggest “outsourcer-in-chief” or “outsourcing pioneer.”

A bipartisan poll released on Monday by the Mellman Group and North Star Opinion Research - the former a Democratic polling group, the latter a Republican - found that 62 percent of voters want the US to become tougher with China “and use every possible means to stop their unfair trade practices,” a result that observers suggest will only increase candidates’ anti-China trade rhetoric further. Only 29 percent of respondents in the survey felt that this strategy could spark a trade war with China that could backfire on the US.

Obama, for his part, has stressed throughout his re-election campaign his ramping-up of pressure on Beijing to appreciate its currency - the renminbi - more quickly and has reiterated his 2010 pledge to double US exports by 2015 as part of his strategy to use trade in creating US jobs. The Obama administration is also pointing to the high number of WTO cases that have been filed against Beijing compared to the former Republican administration under George W. Bush.

“Unfair Chinese trade practices has been a priority of this president throughout [Obama's] term in office,” White House Press Secretary Jay Carney told reporters on

Monday. “That is precisely why 3.5 years into the president’s first term we have doubled the rate of WTO cases against China versus the prior administration.”

Currency issue not black and white

However the Romney campaign argues that Obama has not gone far enough. In a memo issued last week, policy director Lanhee Chen lambasted the US President’s policies toward China during his first term in office. The memo specifically criticised the Obama administration for not formally declaring China a “currency manipulator,” highlighting the long-standing issue of Beijing’s strict valuation of its currency and its possible effects on US export competitiveness.

But while Romney has pledged to name China a “currency manipulator” on his first day in office, should he win this November’s election, it is unclear whether he will find enough support among lawmakers, including those among his own party.

While a law that effectively targets China for its strict valuation of its currency successfully made it through the US Senate late last year - largely through the support of several Democrats - the effort has stalled in the Republican-led House, despite calls from Democrats for the House leadership to bring the bill to the floor.

Notably, Speaker of the House John Boehner, who like Romney is a Republican, has openly disagreed with the former Massachusetts governor’s proposed approach toward the China currency issue, telling reporters last week that his long-standing opposition to legislation that would label Beijing a “currency manipulator” still stands.

However, trade observers note that much of the rhetoric on China might not actually translate to legislation by either candidate upon winning office, given that Beijing and Washington also have many areas in which they cooperate.

“There is a precedent for politicians to say one thing on trade as candidates” only to find a different reality upon taking office, Dan Ikenson of the Cato Institute, a Washington-based libertarian think tank, commented to Bridges.

“I don’t see trade policy being completely disrupted with a change of administration,” Ikenson added. “Romney is going to listen to what the business community wants. And frankly I don’t see Romney being as tough on China as his rhetoric suggests.”

“My guess is, whoever is elected, the temperature on China will go down,” Gary Clyde Hufbauer, a Senior Fellow at the Washington-based Peterson Institute for International Economics, noted.

Jackson-Vanik, Farm Bill processes take centre stage in Congress

Meanwhile, with Russia expected to become the WTO’s 156th member by late August, an effort in Congress to remove Cold War-era trade restrictions on Russia has sparked intense debate among US lawmakers. Many analysts suggest the issue will continue to escalate as the election process kicks into high gear.

While repealing the Jackson-Vanik amendment - which denies permanent normal trade relations (PNTR) to countries with limited freedom of emigration - has been a high priority item on the Obama trade agenda, it is uncertain whether the US Congress can indeed repeal the Cold War-era legislation before breaking for the August recess.

The PNTR legislation successfully moved through the Senate Finance Committee today, with several additions. Notably, the committee’s chairman, Senator Max Baucus - a Democrat from the US state of Montana - followed through with his promise to add into the draft trade bill the text of the Sergei Magnitsky Rule of Law Accountability Act, which would penalise Russian officials accused of human rights violations, a move that promises to be controversial given the Obama administration’s repeated call to keep the two bills separate.

Despite the progress in the Senate, resolution of the PNTR issue is lagging behind in the House of Representatives - Congress’ other chamber - leading trade observers to doubt whether lawmakers can finalise the process in the coming weeks.

“Members of Congress do not like to take any positions going into the summer recess before the election,” Cato’s Ikenson noted. “Both [the trade and Magnitsky] bills are likely to pass, but I’m sceptical that it will get done before the August recess.”

Meanwhile, the US Farm Bill - the omnibus legislation that will determine the US’ federal agriculture spending for the next five years - has also been in the spotlight over the past several months, with the Senate passing its version of the bill last month. (See Bridges Weekly, 27 June 2012)

However, like the PNTR legislation, the bill is further behind in the House, with a draft version only just making it out of the House Agriculture Committee late last week. Some trade analysts say concluding the process before the current legislation expires in September will likely be difficult; however, lawmakers have a history of finding consensus on farm spending, even at the last minute, leaving the possibility of finishing a new Farm Bill still open.

ICTSD reporting; “House Ag Committee approves farm bill,” AGWEEK, 12 June 2012; “US votes want tougher China trade stance,” FINANCIAL TIMES, 16 July 2012, “Obama repeats attack on Romney as ‘pioneer of outsourcing’,” THE GUARDIAN, 14 July 2012, “Romney and Republican House leader far apart on China currency,” REUTERS, 12 July 2012.

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