Romney is promising to get tough with China

TOUGH TALK: Romney has pledged to designate China a currency manipulator on his first day as president.
TOUGH TALK: Romney has pledged to designate China a currency manipulator on his first day as president.

Republican presidential contender Mitt Romney is promising to get tough on China to help America's workers, but his plans could backfire.

Romney is pledging, on his first day in office, to designate China a currency manipulator, a step no administration has taken against any country for 18 years.

That could, eventually, lead to tariffs punishing China for policies that Americans believe unfairly keep Chinese products cheap, hurting US manufacturers. Tariffs could trigger a trade war with a country that is the fastest-growing market for US exports. Even if they don't, the designation would instantly set back relations with Asia's emerging superpower.

The US seeks Chinese cooperation on international hotspots, such as North Korea and Iran, and wants to narrow differences over how to handle maritime territorial disputes in East Asia.

Given the potential repercussions, some foreign policy experts doubt Romney would carry out the currency threat. Other presidential candidates have made similar promises in order to appeal to voters who have seen manufacturing jobs migrate to China. But, once elected, they soften their approach.

"There's probably been wisdom in administrations in the past, Republican and Democrat, of not wanting to go there," said Jon Huntsman, who served as President Barack Obama's first ambassador to China before a failed bid for the Republican presidential nomination.

But the commitment to act on inauguration day doesn't appear to leave much room to back down.

Romney has also taken aim at Obama's "pivot" to Asia - a strategy of deploying more forces and shoring up US alliances there, in part to counter China's military buildup.

In a speech this week, Romney said China's recent assertiveness was "sending chills through the region." He said the pivot is under-resourced and has alienated US allies elsewhere. He outlined plans to expand US naval power - although it's unclear how he'd pay for it since he also wants to slash government spending.

"What we have seen from the Obama administration has been acquiescence to China, not just on trade issues and currency issues, but on issues of security and human rights," said Romney foreign policy adviser Alex Wong. "To protect our interests and those of our small businesses and of our economy, we have to take measures to make sure China does play by the rules."

US-Chinese relations are entering a critical juncture. Two days after the Nov. 6 vote, China will begin its own once-in-a-decade leadership transition. How the next US administration gets on with the new guard in Beijing could determine whether the world's pre-eminent military powers can cooperate in the Asia-Pacific region or head on a path to confrontation.

Appreciation of those stakes tends to get lost in the fiercely fought election campaign.

Both Romney and Obama have TV spots with China as a foil. Romney accuses Obama of being soft on China's trade practices; Obama accuses Romney of outsourcing US jobs to China when he ran the private equity firm Bain Capital.

The tone of the debate, labelling China a "cheat," has drawn withering criticism from the architect of US re-engagement with Beijing 40 years ago, former Secretary of State Henry Kissinger, who has nonetheless endorsed Romney. Kissinger said that avoiding conflict between the powers is the most fundamental challenge for US foreign policy.

China's state media has weighed in with unusually direct criticism of a presidential candidate, suggesting that Beijing hopes Obama will win.

News agency Xinhua has accused Romney of hypocrisy, saying much of his wealth was made doing business with Chinese companies, and warning that his "mud-slinging" policies could spark a trade war.

Early in his presidency, Obama made warmer relations with China a priority, and ties have deepened. The two governments have navigated some rough patches - such as the standoff over a blind activist, Chen Guangcheng, who sought refuge in the US Embassy in Beijing, and was then allowed to come to the US to study. The Obama administration said that reflected a maturing relationship.

But diplomacy has failed to bridge fundamental differences on issues such as climate change, the civil war in Syria and China's territorial disputes with its neighbours. And as the US has wound down its wars in Iraq and Afghanistan, its modest moves to deploy more forces around Asia have irritated Beijing.

Romney is calling for an even stronger US presence in the Pacific. Wong said that would encourage the peaceful resolution of the region's many maritime territorial disputes, including one flaring between US ally Japan and China over islands both claim. He said Romney would make clear it has a treaty alliance with Japan that covers the islands and has the naval power to back it up.

Those plans, though, could take years to implement. Addressing the currency issue on day one would immediately affect relations.

Romney says he would designate China as a manipulator unless it stops currency manipulation by his January inauguration. Romney trade policy adviser Oren Cass said this would set a new tone, and show the US is willing to take China to task over a range of trade violations, including intellectual property theft and restrictions on market access for US companies in China.

The designation itself would not mandate any sanctions, only that the US would have to hold consultations with China.

Cass said if after consultations Beijing doesn't move toward floating its currency, the US could impose so-called countervailing duties on Chinese products.

But Matthew Goodman, former director of international economics in the National Security Council under Obama, said the US discretion to unilaterally impose retaliatory tariffs ended when it joined the World Trade Organization in 1995, and in practice it is difficult to take a currency dispute to the WTO for settlement. Cass says under domestic law, the US could impose countervailing duties, and it's an open legal question at the WTO whether member states can do so unilaterally to compensate for a currency subsidy.

How China would respond may be swayed by its leadership transition. The new guard would not want to appear weak. But neither would China want the dispute to escalate as it relies on exports and faces its own economic slowdown. If that translates into major jobs losses at home it could affect social stability, which is Beijing's biggest concern.

Obama has consistently opted against designation of China as a currency manipulator. Like President George W. Bush before him, he has preferred to wait while economic forces encourage Beijing to allow its currency to strengthen - which it has done, although most economists still believe it is undervalued.

The Treasury is due to make next six-month assessment on Monday, although it's not yet clear if it will be announced on that date. China is likely to get a pass.