Ramesh Ponnuru on how Both Campaigns Succumb to Foolish Protectionism:
Romney claims that by manipulating exchange rates China has added to its trade surplus with the U.S., and this surplus has cost at least 450,000 American jobs. His argument may have political appeal, but it doesn’t make economic sense -- which is why he largely ignored his own economic team on the question.
The bilateral trade deficit is an increasingly meaningless statistic. It treats iPhones as Chinese exports because they are assembled and shipped in China. Pascal Lamy, the director-general of the World Trade Organization, has said the U.S. trade deficit with China might be halved if the statistics took better account of supply chains.
To get its estimate of 450,000 lost jobs, the Romney campaign cites a Washington Post article, which in turn attributes the number to “a pro-labor advocate at the liberal Economic Policy Institute.” It’s a nonsense figure, reached by falsely assuming that if exports create jobs, imports must destroy them at the same rate. Almost all economists believe that two countries can both come out ahead by trading, just as two people can.
China has been letting its currency move closer to market levels since 2005. So far, that movement hasn’t been correlated either with the size of the American trade deficit with China or with the number of jobs available in the U.S. Dan Ikenson, a trade-policy analyst at the Cato Institute, provides one reason the appreciation of the yuan might not have the effect on the trade gap that Romney wants: It makes some Chinese exporters more competitive by cutting the cost of their imported inputs. Romney would be risking a trade war to get China to accelerate a policy that hasn’t yielded any visible improvements for the job prospects of Americans.
Trade attorney and blogger Scott Lincicome makes a strong case that presidents don’t even have the legal authority to take the steps Romney advocates. The president can’t just instruct the Treasury Department to reach the formal conclusion that China is a currency manipulator, or order the Commerce Department to start levying tariffs.
Let's hope that if Romney is elected, his promise to "get tough with China" on trade is one he doesn't keep while in office.