Romney’s ad on manufacturing dominance and ‘China’s cheating’

at 10:00 AM ET, 09/17/2012

“Under Obama, we’ve lost over half a million manufacturing jobs. And for the first time, China is beating us. Seven times, Obama could have stopped China’s cheating; seven times, he refused.”

— Narration from Romney campaign ad

Republican presidential nominee Mitt Romney focused much of his attention last week on manufacturing jobs and President Obama’s trade policy toward China. His campaign released an ad suggesting that U.S. manufacturing as a share of global output has shriveled in comparison with that of its Asian trading partner. The video also said the current administration has refused to stop China’s cheating.

Let’s take a look at the facts to determine whether those claims are true.

The Facts

The Romney campaign ad features a pair of bar graphs supposedly representing U.S. vs. Chinese shares of world manufacturing during Obama’s tenure in the White House. The illustrations suggest a giant shift in output between the two nations since the president took office in 2009.

To prove its claims about manufacturing output, the Romney campaign pointed us to a set of U.N. numbers on global manufacturing compiled by the British Parliament. Sure enough, China increased its share of the world total by 25 percent. (It claimed the top spot in 2011, bumping the U.S. from a perch it had held for 110 years).

Still, the Romney campaign’s illustrations are totally out of proportion. The U.N. numbers show that U.S. manufacturing represented 18.5 percent of world output in 2008, compared to 15.1 percent for China.

That’s not what the graphs indicate.

We translated the U.N. numbers into brick layers, since that’s the metric the Romney campaign used. Based on the true figures, we should see 14 layers of brick for the U.S. and 11 for China. But the ad shows 14 for the U.S. and eight for China — far from accurate.

If the illustrations were properly scaled, they would show Chinese manufacturing at 82 percent of U.S. output in 2008. Instead, they put Chinese manufacturing at just over half of U.S. output that year, overstating the U.S. advantage at the time Obama took office.

The bar graphs eventually change, showing U.S. output shrinking to half of China’s by 2010 — it uses eight brick layers to 16 for the two countries, respectively. This is a gross misrepresentation of the real shift. The U.S. share of global output in 2010 was actually 96 percent of Chinese manufacturing. An accurate graphic would have shown about 15 layers of brick for the U.S. next to 16 layers for China.

We also noticed that the ad doesn’t compare apples to apples when talking about the shift in shares of global manufacturing. Instead, it mentions output versus jobs — a 25 percent rise in China’s share of global output compared to a loss of 582,000 manufacturing jobs in the U.S.

Looking at output percentages, the U.S. dropped less than 2 percent, while the China increased 25 percent. This isn’t as dramatic as it sounds, and it’s also misleading.

The focus should be on percentage points instead of percentage. In that respect, the U.S. share of global output fell just .3 percentage points while the Chinese share rose 3.8 percentage points.

Overall, China’s slice of global production has risen quite a bit, but the U.S. has remained roughly steady. This shows that China’s rise doesn’t necessarily have to result in a drop for the U.S.

Just to be clear, this is what we’re looking at:

We should point out that U.S. output increased by .9 percentage points in 2009, which is further evidence that the nation held its own, despite minor fluctuations during the early part of Obama’s term.

Moreover, a general downward trend in U.S. manufacturing started before Obama entered the White House. The U.S. share of global output dropped from 26 percent to 18.5 percent during President George W. Bush’s eight years in office. Meanwhile, the Chinese share of global output jumped from 8.3 percent to 15.1 percent during that same period.

Data from the Bureau of Labor statistics support the Romney campaign’s claim about jobs lost in manufacturing. Net domestic employment in that sector has dropped by 879,000 workers since December 2008, although the level has generally risen since April 2010. But again, this is comparing apples to oranges.

The Romney ad claims that Obama refused seven times to stop China from cheating. This refers to the current administration’s decisions not to label the Asian nation as a currency manipulator.

American officials have long said that China keeps its currency, the yuan, artificially low — generally undervalued by 20 percent to 30 percent against the dollar — to give its exports an advantage on the world market.

The Treasury Department has two opportunities every year to apply the currency manipulator label to China — or any other nation — when the agency submits its mandatory Semiannual Report on International Economic and Exchange Rate Policy to Congress.

The Obama administration has opted against using the currency manipulator label, instead using diplomacy to address China’s policy, as did previous administrations. In 2011, Chinese President Hu Jintao promised to implement exchange-rate reform, and the value of the yuan appreciated for a short while before dropping again this year.

The currency manipulator label is not the only trade-enforcement tool at the government’s disposal. The Obama administration has leaned on less-sweeping measures so far, filing seven World Trade Organization complaints against China to help level the playing field for U.S. exports of automobiles, rare-earth minerals, solar panels, wind turbines, poultry, tires and music.

Romney campaign spokeswoman Michele Davis said the Obama administration’s WTO complaints represent a piecemeal approach and that “the impacts are not comparable” to labeling China as a currency manipulator. “A product-by-product approach is never going to affect the systematic imbalance,” she said. “It doesn’t address the problem with the entire playing field.”

It’s worth pointing out that applying the currency manipulator label to China could heighten tensions between the U.S. and its Asian trading partner and affect unity between the two nations in dealing with such issues as Iran’s nuclear ambitions.

As former Bush White House chief of staff Joshua Bolten noted recently about Romney’s tough language: “If history is a guide, such sharp campaign rhetoric is blunted by the reality of governing.”

Indeed, talking tough about China is standard campaign rhetoric for candidates in a presidential campaign. Sen. John Kerry (D-Mass.) pledged to crack down on China’s currency ma­nipu­la­tion during his run in the 2004 election, and Obama vowed to do the same during his 2008 bid, specifically promising, “China must stop manipulating its currency because it’s not fair to American manufacturers, it’s not fair to you, and we are going to change it when I am president.”

Obama hasn’t gone so far as to label China a currency manipulator, but neither did his predecessor. As noted in a 2011 report from the Congressional Research Service, “The George W. Bush and Barack Obama Administrations have had many conversations with China about exchange rate issues. Nonetheless, their officials were careful never to say publicly that China was manipulating its currency in violation of IMF rules.”

Romney’s bellicose talk about China is belied somewhat by the long association he has had with the country through the company he founded, Bain Capital. The private equity firm began major direct and indirect investments in China while Romney was still chief executive.

For example, in the early 1990s, Bain acquired a U.S. bicycle manufacturer that relied on lower-cost Chinese parts and labor to produce some of its specialty and retail bikes. The company, GT Bicycles, expanded its U.S. workforce during the years Bain owned it, in part because it was able to take advantage of lower-cost labor in China, Taiwan and other foreign countries.

When other leading U.S. bike manufacturers sought unfair trade sanctions against China for providing below-market bikes, GT was among those opposing the proposed sanctions, according to a document from the U.S. International Trade Commission.

Today, the U.S. bike manufacturing sector has withered. There are many reasons for its decline, but some of the industry’s longtime advocates blame cheap imports from China.

Davis said the GT case is irrelevant to Romney’s position because the company opposed sanctions, whereas Romney has promised to address currency policy. “Currency is a much bigger obstacle to tackle than these issues with one type of product or one company,” she said.

The Pinocchio Test

Romney’s campaign is correct that the U.S. has lost more than half a million manufacturing jobs and that China claims a greater share of global output than any other nation. But the ad’s inaccurate bar graphs vastly exaggerate the shift that has taken place — they simply don’t represent the true numbers.

As for the notion that Obama refused to stop China’s cheating, the ad ignores seven complaints filed by the current administration to protect various U.S. industries from unfair trade practices by the Asian nation.

Romney has promised to punish China with the currency manipulator label, while Obama has refrained from doing this. But it’s not like the current administration hasn’t taken action at all to protect U.S. trade interests.

On balance, the GOP presidential nominee earns two Pinocchios for a campaign ad that features bogus graphics and for statements that ignore a significant part of Obama’s trade policy toward China.




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    About the Blogger

    Glenn Kessler has covered foreign policy, economic policy, the White House, Congress, politics, airline safety and Wall Street.

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