This Reuters article reports more detail on the candidates’ economic policies – specifically their policies on trade with China – than I’ve seen so far. There is no more crucial issue in this election than trade policy, especially our policy toward trade with China, where our trade deficit continues to grow and is approaching $300 billion per year, nearly half of our total trade deficit.
The following excerpts summarize the candidates’ positions. First, Obama:
“Central to any rebalancing of our economic relationship must be change in currency practices,” Obama said in his policy paper.
“I will use all the diplomatic avenues available to seek a change in China’s currency practices,” he said.
Obama said China pegs its yuan currency at an “artificially low rate,” making its exports unfairly cheap.
He has backed legislation that would define currency manipulation as an illegal subsidy so that the United States could slap duties on more Chinese goods.
It’s the last paragraph above that sets Obama apart. Consider McCain’s policy:
“(China’s) commitment to open markets must include enforcement of international trade rules, protecting intellectual property, lowering manufacturing tariffs and fulfillment of its commitment to move to a market-determined currency,” McCain said.
First of all, both candidates rely far too much on currency valuation. It won’t work. A good example is contained right within this same article:
The yuan has appreciated a further 18.47 percent since it was revalued by 2.1 percent to 8.11 per dollar in July 2005, and freed from a dollar peg to float within managed bands. Now one U.S. dollar buys about 6.85 yuan.
During this time frame in which China’s currency strengthened by almost 20%, the trade deficit has continued to soar, rising nearly 50%. While China’s currency rises, they simply cut prices (in terms of the yuan) to maintain their dollar pricing in the U.S. market. Decades of experience has also proven that other approaches which rely upon the trading partner (regardless of the country) to take action are equally ineffective. “Enforcing trade rules.” “Protecting intellectual property.” “Enforcing labor standards and environmental standards.” All of these approaches have been abysmal failures. Only actions which place control in America’s hands have any chance whatsoever of succeeding. Folks, this means tariffs.
And, judging by that standard, only Obama has expressed a willingness to do it. I’m concerned that he will waste time waiting to see the effects of currency valuation, but at least he’s got the tariffs in his tool bag.
Our enormous trade deficit, approximately three quarters of a trillion dollars per year, is by far the most critical issue of our time. It lies at the very heart of our escalating economic melt-down. We should be supporting candidates who express a willingness to take positive action to restore a balance of trade. Regardless of which candidate you support, it’s imperative that you challenge him or her to clearly state what proactive steps they will take to eliminate our trade deficit and put America back on a solid financial footing.