“I will go anywhere in the world to open new markets for American products,” said President Obama last week, in his State of the Union address.
He also indicated that he’s willing to risk a trade war with China, possibly leading to a result that’s the exact opposite of his stated goal: the swift closure of new markets for U.S. goods and services.
President Obama entered the White House three years ago as a protectionist candidate who spoke of withdrawing from the North American Free Trade Agreement. Once in office, he felt the burden of responsible governance and reversed course, promising to double exports in five years and embracing the free-trade agreements negotiated by his predecessor.
Last week, however, the president switched back to campaign mode. He defended his record on trade, but also went on the offensive against China, announcing the creation of a “Trade Enforcement Unit” that will investigate “unfair trading practices”, search for “counterfeit or unsafe goods,” and file formal complaints, presumably with the World Trade Organization.
The populist rhetoric was pitched at a public that’s always a little nervous about free trade. A few months ago, polls suggested that Americans were split on the merits of the free-trade agreements with Colombia, Panama, and South Korea as well as proposals to slap special tariffs on Chinese imports.
President Obama’s speech also served the political purpose of keeping stride with Mitt Romney, the GOP presidential candidate who goes out of his way to bash China.
Sticking up for China isn’t easy, of course. Its approach to intellectual property rights is akin to organized banditry. This problem grabbed the attention of every American who uses the Internet on January 18, when Wikipedia went dark and Google redacted its logo to protest legislation aimed at protecting copyright holders. China also keeps its currency at artificially low levels, giving its exports an advantage in global markets.
These are genuine problems. But a trade war won’t solve them. It would raise prices on consumers, hurt export opportunities for businesses, and fail to achieve its main objectives. None of this would help the struggling U.S. economy.
Consider the administration’s special tariff on low-priced tires from China. If the United States initiates a trade war against Beijing, historians may point to this skirmish as the opening salvo in a wider conflict.
In his State of the Union address, President Obama praised his policy, adopted in 2009, of slapping special duties on cheap tires from China. “Over a thousand Americans are working today because we stopped a surge in Chinese tires,” said the president.
That’s simply not true. As a report in the Wall Street Journal recently showed, this bit of targeted protectionism probably didn’t save a single American job. Manufacturing simply moved from China to Indonesia, Mexico, and Thailand. “So far as saving American jobs, it just isn’t working,” said a spokesman for the 6,000-member Tire Industry Association.
Meanwhile, China retaliated with its own tariffs on American chicken exports, doubling the prices of some products and shrinking the U.S. share of China’s chicken market. The move was so damaging that Ambassador Ron Kirk, the U.S. Trade Representative, complained that China was “threatening American jobs.”
The Obama administration can’t have it both ways, claiming to save jobs when it pursues protectionism and griping about threatened jobs when competitors strike back.
This illustrates the weird logic of trade wars. A dispute that the Obama administration thought would involve only a sub-sector of the tire trade suddenly hurt American agriculture. Trade wars have a terrible tendency to spread through unrelated industries like a deadly contagion, until they infect the whole economy.
There are better ways to confront Chinese malfeasance. Congress should try to write a law that protects intellectual property rights but doesn’t make Internet companies go hysterical. Encouraging China to let the value of its currency rise may be even trickier, but old-fashioned diplomacy is a better option than brass-knuckled protectionism.
President Obama says he’ll “go anywhere” to help sell American products. When it comes to his “Trade Enforcement Unit,” he should go back to the drawing board.
Dean Kleckner chairs Truth About Trade & Technology (www.truthabouttrade.org)