Would Romney really dare to tag China a 'currency manipulator'?

There he goes again – Mitt Romney used the big stage of a national presidential debate Tuesday night to hammer home his oft-repeated pledge to act on Day 1 of a Romney White House to declare China a "currency manipulator."

As he does on the campaign trail – especially in manufacturing states of the Midwest such as Ohio – Mr. Romney threw down his commitment to slapping China over its currency as a graphic way of assuring voters that he would get tough on China and what he says are its unfair trade practices.

“I’ll crack down on China,” Romney said in response to a question asking how manufacturing can be brought back to the US. Saying he would do something President Obama “refuses to do,” Romney said: “On Day 1, I will label China a currency manipulator, which will allow me as president to be able to put in place, if necessary, tariffs where I believe that they are taking unfair advantage of our manufacturers.”

But Romney’s insistence that one of his first acts as president would be to do something that both Mr. Obama and predecessor George W. Bush resisted doing – despite intense pressure from Congress – has caused speculation over Romney’s motivations. Is he serious, some international economists wonder, about carrying out an action they say could lead to a devastating tit-for-tat trade war and even, in the extreme, to an economic depression in the US if China reacted by no longer buying US Treasury debt?

Some political analysts assume that Romney would simply forget his pledge once in office. Others say, “Don’t bet on it” – but they also advise paying close attention to the caveats Romney usually throws in when he makes the “currency manipulator” pledge, as he did Tuesday when he said that “if necessary” he would move from the symbolic act of tagging China as a currency manipulator to a concrete step such as slapping tariffs on specific Chinese goods.

Romney’s advisers on trade policy say the point of designating China a currency manipulator would be to set a “new tone” in US-China relations. Romney would be putting China on notice that it either stop its unfair trade practices – such as keeping its currency artificially low to make its goods cheaper on the export market – or face US action.

Advisers such as domestic policy director Oren Cass underscore that naming China a currency manipulator would not automatically lead to punitive measures. The designation would trigger a US-China dialogue on the yuan’s value.

But it would be up to China, say Romney advisers, to avoid stiff US measures such as tariffs by taking actions such as letting its currency appreciate and addressing the theft of intellectual property.

The risk, some international economists say, is that China would react in a very different way – for example, by beating the US to the punch and slapping tariffs on US goods, or by turning away from the US bond market.

The Obama administration has followed a different approach than the one Romney advocates, pressing China through regular dialogue to allow its currency to appreciate. Mr. Obama said at Tuesday’s debate that because his administration has “pushed [China] hard” the yuan has appreciated 11 percent during his presidency, which is correct.

The Obama administration has also imposed some punitive trade measures. Obama cited his 2009 action slapping tariffs on Chinese tires, and claimed his approach overall has saved jobs at home and boosted US exports to China. But economists generally pan actions like the tire tariffs, saying the trade-off for what Obama claimed was 1,000 jobs saved is higher tire prices for the US consumer.

Some political analysts say Romney’s China-bashing serves another purpose: to deflect criticism from the Obama camp that Romney, the former Bain Capital CEO, built his wealth on outsourcing jobs to China. Obama followed that line of criticism Tuesday when he described Romney as “the last person who will be tough on China.”

Former Secretary of State and Nixon-to-China architect Henry Kissinger may find, as he declared recently, that the campaign’s China-bashing is “deplorable,” but he and other voters can count on hearing more of it. Monday’s final debate of the presidential campaign, to be held in Boca Raton, Fla., will focus on foreign policy and will have a segment dedicated to the implications of the rise of China.