Of all the people Barack Obama thought he would be running against next year, here’s perhaps the most unexpected: China’s leaders.
That’s dawning on the president as he travels through the Asia-Pacific region. His re-election campaign seemed to shift into a higher gear last weekend in Hawaii, where he declared “enough’s enough” on the lack of movement by China on currency valuation and honoring international property rights.
We could be seeing the start of a more confrontational tack toward China. Obama shouldn’t just see his mercantilist counterparts as an easy target as voters question why unemployment is stuck at 9 percent; China is the right place to aim his frustrations. Although this strategy comes with just as many risks as opportunities, it’s worth pursuing.
Events at last week’s Asia-Pacific summit put something troubling on display. As the world heads toward another global crisis, one that could dwarf 2008’s, its second-biggest economy is doubling down on unenlightened self-interest. China is signaling that it’s more determined than ever to play by its own rules to the detriment of everyone else. If Obama doesn’t stand firm, he could be remembered as the president who, in a sense, lost China.
Hypocrisy is a central element of this U.S.-versus-China moment. The U.S. debt buildup is worrying not just credit-rating companies but also America’s bankers in Beijing. Ultralow interest rates give China a negligible return on its $3.2 trillion of currency reserves, with the Federal Reserve doing its part to devalue the dollar. But it’s far-fetched to think a surge in China’s yuan would spark an immediate burst of U.S. job creation.
Yet if China began to play by global rules on trade, patents and climate change, the world over would reap the dividends. And if the World Trade Organization isn’t up to the job of demanding that China do its part to rebalance the world economy, what good is it?
Obama should avoid the mistake Bill Clinton and George W. Bush made. Both were swayed by multinational companies pleading for the United States to put economic peace with China above all else. True, an all-out trade war is in no one’s best interest. But then, neither is selling out America’s economic future for the sake of smooth relations.
The interests of multinational conglomerates — profits and corporate tax havens — don’t necessarily dovetail with those of American workers. When executives fret about trade wars, they’re thinking about the China gravy train — cheap labor and lax environmental rules — that pumps up earnings, not workers.
In a sense, Obama risks making the same mistake with China that he’s made with Republicans who block his every move to stimulate the economy. It’s important to work with your opponents. It’s more important to stand by your ideals and act in the interest of all Americans.
A stronger stance toward China need not lead to confrontation for a very simple reason: It’s no more in China’s interest than the U.S.’s. The glue that holds together the entire Chinese economy is exports. The imposition of steep U.S. or European tariffs on Chinese goods would be a huge blow.
Let’s also dispense with the idea that China has great leverage over the U.S. because it holds $1.1 trillion of Treasuries. It’s really a weakness. The slightest hint China is dumping dollar holdings would send U.S. yields higher and the dollar lower. That not only means less U.S. purchasing power and lower demand for Chinese goods, it also means a reduction in the value of China’s investment.
Obama should be finding allies in Asia. President Hu Jintao is right that the global economic system needs an overhaul. The growing influence of developing nations means the United Nations, the Group of 20, the International Monetary Fund and other institutions must allow voices to be heard on what used to be considered the periphery.
Yet it’s important what those voices say and do. Trade isn’t supposed to be a zero-sum game, yet China’s currency policies make it one. Officials from Jakarta to Brasilia should be speaking because their economies are being hurt by China’s export obsession. They don’t for fear of running afoul of what might someday be the biggest economy.
With Election Day just a year away, much will ride on how Obama plays China. He should stop acting as if the U.S. has been left with a losing hand.
William Pesek is a Bloomberg View columnist.