Romney's plan to tame the Chinese trade dragon

A mood of economic urgency pervades America’s political scene. And it’s one that lends itself to sweeping proposals for job creation.

President Obama lays out his latest ideas Thursday. But one radical proposal from a leading Republican presidential candidate has the potential to shake up the national debate – as well as the global economy for the rest of the 21st century.

In a speech today, Mitt Romney took an unusual step for a GOP leader. He suggested the United States restrict trade with China over its many predatory tactics that hurt foreign businesses – from stealing patents to reneging on contracts to allowing fake Apple stores to outright bans on certain imports or services.

Mr. Romney promises to form a partnership of countries committed to free enterprise and free trade that will confront China for “free-riding on the international system.”

“I have no interest in starting a trade war with China,” Romney stated, “but I cannot accept our current trade surrender.”

His plan to force reciprocity in trade on China runs counter to a Republican tradition of generously keeping US markets open while tolerating many trade barriers in poorer nations in hopes they will grow into responsible free-trade partners and export markets.

But China is not just any poor country, given its demographic girth and world market-skewing ways. Estimates vary but as much as 40 percent of US manufacturing jobs may have been lost to China since it joined the World Trade Organization (WTO) a decade ago.

And the Republican Party, too, has not been its old free-trade self because of the tea party. That loose band of America-first conservatives champions a brand of economic isolationism. And Romney is eager to win its endorsements.

The former Massachusetts governor is also bucking that part of the GOP helped by donations from the big corporations doing well in China – corporations that moved many factories out of the US. These firms have long had a loud voice in trade policy.

If Romney’s idea is embraced by other major GOP candidates, that could push Mr. Obama to get tough on China. Already 6 out of 10 Americans disapprove of the president’s economic stewardship. And Democrats in Congress have long been eager to punish China for its trade practices, especially the manipulation of its currency that lowers the prices of its exports and enables it to outsell its competitors.

No matter who wins the White House in 2012, China could end up in a giant trade battle with the US – with unforeseen consequences for world commerce. Yet any president who raises trade barriers – even in the name of free trade – runs the risk of repeating the mistake of the 1930s, when many nations closed their trade borders during the Great Depression only to help prolong it.

Many American companies say they could compete with Chinese firms – both in global markets and even inside China – if Beijing only adopted the same kind of free-trade policies as the US. While China does enjoy lower wages and fewer environmental rules, these US firms say they can compete well in workplace efficiency and technical advantages, thus creating jobs in the US.

China justifies its trade-restricting policies as a way to lift more of its 1.3 billion people out of poverty. It is not willing to adopt US-style policies for fear of creating worker unrest and jeopardizing the Communist Party’s rule.

The Romney idea thus strikes at the heart of these two nations’ political interests in job creation. It also may require the US to end its membership in the rule-setting WTO, assuming a new group of free-trading countries can be formed. (Romney would name the grouping the “Reagan Economic Zone.”)

Faced with possibly years of economic stagnation, the US may be reaching a critical transition if it threatens trade barriers such as import tariffs as a way to force China to change. Fighting fire with fire in trade policy has often ended badly, and Romney is now playing with that fire.

Yet if a trade war does erupt, China will likely have the most to lose. Before American politics fully adopts the Romney idea, China needs to mend its ways – fast.