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There are certain things that US presidential candidates are required to believe in. God, guns, liberty, bravery and the American dream are all standard rhetorical fare.
But the second presidential debate, held earlier this week, highlighted a more recent meme that both Barack Obama and Mitt Romney seem to have embraced — the idea that China is a currency manipulator and, as such, poses some kind of threat to the US economy.
China was mentioned more than 20 times during a town hall-style debate that gave undecided Long Island voters a chance to confront the candidates directly. China was mentioned more often than almost any other topic, but not one of those mentions came from a member of the audience. They all came from either the candidates or the moderator, Candy Crowley.
It didn't take long for Romney to wheel out his usual anti-China sales pitch: “On day one, I will label China a currency manipulator, which will allow me as president to be able to put in place, if necessary, tariffs where I believe that they are taking unfair advantage of our manufacturers.”
Danish economist Lars Christensen, head of emerging markets research at Danske Bank, has labelled such comments “economically meaningless”, pointing out that a significant revaluation of the renminbi would hardly help the global economy.
“To engineer this, the People’s Bank of China would have to cause a sharp contraction in the Chinese money supply and money-velocity,” he wrote on his blog. “The result would undoubtedly throw China into a massive recession — or more likely a depression. You can only wonder what that would do to US exports to China and to US employment. Obviously this would be massively negative for the US economy.”
Highlighting the folly of Romney's position could have been a slam dunk for Obama, but the president did not take his opponent to task for it. Instead, he doubled down on it by insisting that he was the tougher of the two men, and even implied that Romney was a closet Sinophile.
“When he talks about getting tough on China, keep in mind that Governor Romney invested in companies that were pioneers of outsourcing to China,” said the president. Gotcha!
He was referring to outsourcers such as Hong Kong’s Global-Tech Appliances, which made curling tongs and the like for Revlon and Vidal Sassoon, as well as many other companies.
When it comes to China, both candidates are keen to appear more protectionist than the other. Indeed, it is one of the few areas where they agree. But, for the most part, the undecided voters of Long Island seemed to have more pressing concerns.
These are the topics they asked about:
- jobs;
- gas prices;
- tax deductions;
- inequality in the workplace;
- immigration;
- the embassy attack in Benghazi; and
- gun control.
China found its way into the answers to several of those questions, but the only person to ask specifically about the country was Crowley, the moderator.
“[The] iPad, the Macs, the iPhones, they are all manufactured in China,” she said. “One of the major reasons is labour is so much cheaper there. How do you convince a great American company to bring that manufacturing back here?”
That doesn’t make much sense either. It’s hard to argue that Apple’s business model has hurt the US economy.
It also doesn’t mean much to say that iPhones are “made in China”, despite how often it is said. The processor used in Apple’s mobile devices is made by Samsung in Korea (though not for much longer), while the circuit board, battery, memory, touchscreen and most of the other advanced components are made in Taiwan.
And the neatest stuff — the operating system and the apps — is all made in the US.
China’s manufacturers are certainly moving up the value chain, but the reality is that its contribution to products such as the iPhone is mostly low-end manufacturing and assembly, and that its biggest advantage is proximity to the rest of the supply chain. Apple is the one making all the money.
Blaming China for the lack of jobs in America clearly has its attractions as a campaign strategy, but ignores the obvious reality that creating jobs is well within the power of the US government (though it may come at the cost of tax cuts for the rich).
Instead of crying about the value of the renminbi, the US may be better off trying a devaluation of its own, according to Christensen. If you can't beat them, join them.
“Let’s assume that the Federal Reserve announced massive intervention in the FX market to weaken the US dollar and the result was a sharp increase in US nominal GDP. Would the rest of the world be worse off? I doubt it.”
That would risk provoking a currency war, of course, but Christensen prefers to think of that as a "mutually beneficial" increase in the global money supply — just what the doctor ordered given the deflationary environment.
Christensen’s views are certainly not mainstream, but they make a lot more sense than the economic vision being sold by Romney, or even Obama.
