COMPETITIVE CHINA-BASHING has become a quadrennial ritual in U.S. politics. In 2008, President Obama beat Republican John McCain, partly by promising to “go to the mat” with China over its trade practices. In office, he, like his predecessors of both parties, abandoned confrontation in favor of a broadly pragmatic approach. This time around, it’s presidential challenger Mitt Romney promising to “crack down on China,” specifically by labeling the People’s Republic a “currency manipulator” on his first day in office. Time will tell whether and how Mr. Romney follows through, if he wins — but we wouldn’t be surprised if he, too, governed differently from how he campaigned. That’s the first reality to keep in mind as the two candidates quarrel over who invested more of his own money in China.
And here is a second one: China is not quite the unstoppable threat to U.S. prosperity that you hear about in crowd-pleasing rhetoric. Undoubtedly, China has grown explosively over the past two decades, capturing a huge share of world trade. But more recently, the story out of China is about a corruption-plagued communist state struggling to escape what economists sometimes call “the middle-income trap.” Export-led growth has given way to an investment boom that’s looking more and more like a bubble. Though the United States still had a $295 billion trade deficit with China last year, our indebtedness to the nation declined — while U.S. productivity gains made manufacturing here more cost-competitive. These trends are also at least partly linked to the fact that, during the past two presidential terms, China has allowed its currency to appreciate 37.5 percent against the U.S. dollar in real terms.