PRESIDENT OBAMA and most congressional Republicans agree that the three free-trade agreements between the United States and Colombia, South Korea and Panama would boost U.S. exports and promote U.S. economic growth. Alas, they still have not passed Congress because of partisan politics.
Mr. Obama was wrong to blame the “refusal by some in Congress to put country ahead of party.” As Republicans point out, he hasn’t even formally submitted the measures to Congress, because the White House wants better guarantees that the GOP won’t water down a related aid bill for trade-displaced workers. But the GOP would be wrong to resist White House needs on this score, since such aid has long been the political price of advancing free trade, whose benefits exceed the program’s costs. This has gone on long enough — and then some.
And yet, some members of Congress are trying to inject another issue: China’s undervalued currency. House Minority Leader Nancy Pelosi (D-Calif.) recently told a labor union gathering that “If you want to bring those trade agreements to the floor of Congress you better be prepared first to let us bring our bill on China’s manipulation of its currency, which is unfair to America’s workers.” In the Senate, too, there is talk of trying to link a bill punishing Chinese currency manipulation to the trade agreements.
China’s undervalued renminbi is a long-standing, bipartisan concern, and it is not a phony one: In pursuit of growth led by exports, China has held the renminbi down in relation to the dollar, rendering its goods artificially cheap in the U.S. market. The renminbi would gain about 20 percent against the dollar if it were allowed to float freely like other currencies, according to the Peterson Institute for International Economics. China’s policy has probably cost Americans hundreds of thousands of jobs and contributed to China’s destabilizing pile of trillions of dollars in reserves.
But is there any practical alternative to the Obama administration’s policy of patient jawboning — which is far from a total failure? In fact, China has allowed its currency to appreciate against the dollar by about 9 percent over the past year. This may respond both to U.S. nudging and to Beijing’s realization that currency manipulation is an increasingly bad deal for China. It’s retarding financial reform, exposing China to the risk of losses on its dollar holdings and — worst of all — feeding inflation. All of this goes against objectives that China’s communist leaders have vowed to pursue in their next five-year plan, starting in 2012. Indeed, U.S. experts such as economist Martin Feldstein of Harvard have suggested that China could be about to correct the problem itself.
Yet five-year aspirations are one thing; political realities in a one-party state are quite another. A cheap renminbi enriches state enterprise managers and other powerful people in the communist hierarchy. A report on the Chinese economy by the Eurasia Group, a consulting firm, notes that “the country’s leaders lack the political stomach and sense of the moment to implement a comprehensive and ambitious rebalancing agenda.”
Punishing China with tariffs or other sanctions probably wouldn’t lead to a jobs bonanza. More likely, other low-wage countries would fill the void left by China, while Beijing retaliated against the United States, costing American growth and jobs. The last thing an already unstable global economy needs is a U.S.-China trade war.
Congressional posturing may help the Obama administration play “good cop, bad cop” with Beijing. But it should not be allowed to impede three long-overdue free-trade agreements whose benefits are not theatrical but real.