You can be pro-trade and anti-currency manipulation

September 24, 2012

For the most part, candidates try to keep their campaign promises. But if there's a regular exception to this rule, it's on trade.

Getting tough on China and reworking our trade agreements sounds great when you're barnstorming Ohio. It doesn't seem to look as good when you're sitting in the Oval Office. Just ask President Obama how renegotiating NAFTA is going.


Charles Dharapak/AP

I don't think it's a coincidence candidates regularly back off this promise. I think it's an unusual issue area where elites have developed a quiet, tacit understanding that what you said during the campaign is just what you said during the campaign. Unlike on health care or climate change or taxes where there are strong groups holding you to your promises, no one really expects politicians to stick to their promises on trade, and so nobody forces them to.

Over at the New Republic, Alec MacGillis thinks he's caught Romney in an unusual pre-inauguration flip-flop on China. Today, MacGillis notes, Romney is as relentless a China hawk as you'll find. It's even the subject of his latest ad.

But a few years ago, Romney wasn't such a tough customer. MacGillis found this clip of him talking China at a foreign policy forum. "It is quite striking in light of Romney’s current anti-China rhetoric," MacGillis says. 

I'm going to quote Romney's answer at some length because it's an unusual example of Romney fluently and fearlessly explaining an unpopular idea that's core to his career and to his economic philosophy. But -- spoiler alert -- I don't think it necessarily contradicts what Romney is saying today.

Q: There is a major trade issue in the news now regarding China and our protection of the tire manufacturing industry. What is your reaction to this controversy and the decision by the administration?  

Romney: I’m glad I can address that in this room, because this is a sophisticated audience and my answer cannot be boiled down to a couple of lines. There is understandable resistance on the part of almost all people to any change that would provide additional productivity. Now, you hear all around America, everyone cheers productivity, but that’s just because most people don’t know what it is. They think productivity means everyone’s working harder and faster and better and therefore we’re all doing better. But productivity really means that more stuff is being created by fewer people. If a nation is highly productive it means that fewer people are able to make more and more stuff. And the nation’s wealth is a function of how productive it is, how much stuff is made by its people, and if you want to see wealthier and wealthier people, you want to see more and more productivity, or more and more things made by the people of that nation.

A lot of people don’t like that idea. You may say, sure, everybody does. A simple example -- let’s pretend there’s a little country with 200 people. This is a long time ago --  100 people raise the food, 100 people build the homes. Someone comes up with the idea of making a plow, hitching it to a farm animal and now they only need 50 people to raise the food. Is that a good idea or a bad idea? To the 50 people who lose their jobs, it’s a very bad idea, and they will resist with great energy and passion the idea of allowing horses to draw plows because it will make their life far more uncertain, at best. Those of us who stand back a bit say, no no no, don’t you understand that by having these plows and releasing those 50 people that someone, one of them or someone else is going to come up with something else for them to do? Making chairs, making movies whatever that is going to make everyone better off. More productivity will make everybody wealthier and more successful.

And that is something which is lost on a lot of people in this country. The tire workers of America look at these tires coming in from China and say this is not good for me. And I understand that and they -- and the corporations, it’s not just the unions by the way, it’s the corporate executives and the shareholders and all the wealth owners, capitalists behind the tire industry -- are saying don’t let those foreign tires in here, it’s gonna hurt me. And it will -- as those tires come in it does hurt them directly, and therefore what their response is, their immediate response is, don’t let them in. But if that’s what their response is, my experience is over time, they will lose out slowly but surely, as they protect their lack of productivity with barriers, they will become less and less competitive, the foreign guys will get more and more volume, more and more successful, they’ll become more and more productive, the domestic guys get less and less productive, less and less competitive, until finally even the tariff can’t hold them out and the foreign products come flooding into the marketplace and the domestic guys are gone.

So putting barriers up, trying to put walls up, in my opinion is a defeating strategy and will yield ultimate decline and collapse. The alternative strategy, by the way, as you know is, to say, OK, those guys have figured out a way to make tires in a more productive way than we have, and we’re going to have to find another way to compete. We’re going to have to find a way to use our ingenuity and our investments, new capital, we’re going to have to find way to compete or we’re gonna be gone. And so we’re gonna either close the doors today or we’re gonna compete head on. And by the way, the same is true in the automotive industry. We’ve watched our market share go down, go down, go down, because we are not productively competitive with foreign manufacturers and transplants that are here. If we invest in productivity here we can be globally competitive.

So, long story short, the wrong answer for America’s workers and for the wealth of every citizen of this nation is to try and put up barriers to stop competition, either domestic competition or competition from abroad. The right answer is always to see competition as an opportunity and a necessity for investment, innovation, technology and becoming more productive. If we do that we’ll be a wealthier nation and we’ll be able to remain the powerful nation we must remain to have a strong and powerful military, which we must have to protect freedom.

Romney is arguing that while workers understandably resist global competition and productivity improvements that directly hurt them, America needs to embrace such dynamism as the price of progress. And he's by and large right -- though part of what we need to be buying with gains of that dynamism is a safety net and effective retraining system for the workers who lose out.

But while Romney's attitude here is notably anti-protectionist, nothing in it really contradicts his promise to crack down on China. Rather, Romney's case against China is that the country is fostering an unfair trade advantage through continuous currency manipulation, which is true, although it's a problem that appears to be declining. It's reasonable to be pro-global competition and pro-creative destruction, which is what Romney is saying in that clip, and against currency manipulation. 

All that said, my expectation is that Romney, like Obama and pretty much every recent president before him, will quickly abandon his pledge to get tough with China if he wins the presidency. They all do.

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Brad Plumer · September 24, 2012