By Mitch Gurney
Oct 19, 2012
During the second presidential debate Romney repeated his promise to get tough on China and while campaigning has called China “cheaters in the global economy” and a “currency manipulator” and accuses Obama for not getting tough on China.
Back in February a Fiscal Times article noted that Romney, during a debate at the time, had pledged:
…that if elected on his first day in office he would brand China a currency manipulator and slap countervailing duties on its imports unless it allows the Yuan to float up. He then turned around and promised that he will “chart a course of fiscal responsibility that will guarantee a strong, stable dollar.”
He repeated that pledge in his second debate with Obama.
This sort of rhetoric over China’s currency policy between the two parties is a “long standing Washington affair” the Times article had noted:
Clearly, when it comes to talking about currencies, flip-flopping is a bi-partisan affair…going back to the Reagan administration when the dramatic rise of Japanese imports triggered national teeth-gnashing about the declining power of domestic manufacturers…
[While on the campaign trail]…it’s easy to poke fun at the Obama administration for their half-hearted attempts at jaw-boning the Chinese on currency values. But in reality, in every possible venue, top Treasury officials over several decades, even as they complained about the world’s number one currency manipulator, simultaneously pledged their fealty to a strong dollar, and insisted it will remain the global reserve currency.
Romney’s get tough on China is BS and he knows it, he’s merely pandering to a clueless electorate base.
Most anyone with a basic understanding of the global economy, currency exchange and business alliances forged between U.S multinational corporations and China can perhaps figure out how his rhetoric rings hollow. While there are numerous reasons, this first is perhaps less understood by most but it is what every Treasury official has known for decades and surely Romney knows too is “that the Chinese Yuan cannot strengthen without the U.S. dollar simultaneously weakening.” (See Fiscal Times)
Romney’s stated objectives, therefore of getting the Chinese to strengthen the value of their currency while at the same time maintain a strong dollar is a conflicting policy. Additionally a weaker dollar policy is more profitable for U.S MNC’s that have outsourced to China. In an article I wrote about a year ago I featured an article by Charles Hugh Smith:
To reap a fat [corporate] profit, you need to sell the [American branded] stuff being imported from the American-owned factories in China…the Federal Reserve, has run into a spot of bother…the only way to keep [corporate] profits rising is to crash the dollar, and doing that has squeezed the purchasing power of the debt donkeys. By exporting inflation to China and the rest of the world, the Fed has engineered massive profits for U.S. corporations (when profits earned overseas are stated in dollars, presto, a 10% increase) but it has also forced China into raising prices and fueled an oil and import-driven inflation in the U.S. which has caused millions of insolvent households living paycheck to paycheck to cut back on their consumption…
Secondly, Romney, if elected will prove no different from his predecessors and Congress since the Nixon-Kissinger’s Detente with China, and do nothing that disrupts the U.S and U.S MNC alliances and investments with China.
In another Fiscal Times article How Romney’s China Pledge Could Backfire makes this point very clear:
The rhetoric leaves some China experts scratching their heads. “Those arguments are substantially weaker than they were two or three years ago,” said Nicholas Lardy of the Peterson Institute for International Economics. “China’s currency is up 30 percent since 2005; it is much more determined by the market than it was before.”
And it leaves trade hawks wondering if Romney, with his Harvard Business School training and elite business background, is sincere. Virtually every top U.S. corporation belonging to the U.S.-China Business Council, which represents a broad cross section of the Fortune 500 ranging from Walmart to GE to Caterpillar, quietly applauds the administration’s refusal to brand China a currency manipulator in its biannual reports…
Indeed a review of the members list of the U.S.-China Business Council is a who’s who of America’s leading international corporations, some that are big financial supporters of Romney. Most have also outsourced their manufacturing to China and by extension American jobs.
Candidate Romney’s big corporate and wealthy individual sponsors are perhaps not overly concerned with his campaign rhetoric and neither is Henry Kissinger who has endorsed him even while making it clear his get tough stance on China is deplorable. It’s just smoke and mirrors.
A senior fellow at Brookings Institute and former presidential advisor and expert on fiscal and monetary policy, Barry P. Bosworth when asked in a recent interview whether Romney would actually deliver on his campaign promise said “no.”
On occasion Obama has spoken tough on China but as the Fiscal Time article points out “virtually all the Fortune 500 members of the U.S – China Business Council are quietly applauding his administrations passive stance on China.
During the second debate Obama pointed out Romney’s past investment activities in China:
…when [Romney] talks about getting tough on China, keep in mind that Governor Romney invested in companies that were pioneers of outsourcing to China, and is currently investing in countries — in companies that are building surveillance equipment for China to spy on its own folks.
Governor, you’re the last person who’s going to get tough on China.
What Obama pointed out about Romney holds true for his past and the present too. At a time when America needs jobs and while Romney repeats his campaign trade rhetoric, his former company, Bain Capital, continues it ties with China and outsourcing jobs there. However it should be obvious to most that with his “Harvard Business School training and elite business background” that he will not disrupt the financially tight alliances that he and America’s Fortune 500 have with China.
A recent New York Times article provides a penetrating glimpse into how entrenched Romney and Bain Capital’s alliances are with China:
…a confidential prospectus for one of the Bain funds, obtained by The New York Times, promotes China as a good investment for some of the same reasons that Mr. Romney has said concern him: “Strong fundamentals” like manufacturing wages 85 percent lower than what Americans earn, vast foreign exchange reserves and the likelihood that China will surpass the United States as the world’s largest economy.
Among those funds’ holdings is $234 million that Bain invested in 2009 in Gome Electrical Appliances, a major Chinese retailer…[who] Microsoft has accused of selling computers with pirated software.
In 2007, Bain’s Asia fund also invested $39 million in Feixiang Group, a Chinese producer and exporter of chemicals that is a designated “state high-tech enterprise,” making it eligible for tax breaks and other government incentives.
Mr. Romney also has millions invested in a series of Bain funds that have a controlling stake in Sensata Technologies, a manufacturer of sensors and controls for vehicles, aircraft and electric motors that employs 4,000 workers in China.
Two years ago, Sensata bought an operation that made automobile sensors in Freeport, Ill. At the first meeting with the plant’s 170 workers, Sensata managers announced that by the end of 2012 all the equipment and jobs would be relocated, mostly to Jiangsu Province. Workers have staged demonstrations, pleading for Mr. Romney to intervene on their behalf.
Additionally Bain owns Asimco Technologies, an auto parts manufacturer whose plants dot eastern China…9 years ago Bain bought two camshaft factories that employed about 500 people in Michigan. By 2007 both were shut down. Now Asimco manufactures the same components in China on government-donated land in a coastal region that China has designated an export base, where companies are eligible for the sort of subsidies Mr. Romney says create an unfair trade imbalance.
Bain’s interest in China dates to when Mr. Romney ran the firm. During a panel discussion at the Federal Reserve Bank in Boston in February 1998, he told of touring an appliance factory in China where 5,000 employees “were working, working, working, as hard as they could, at rates of roughly 50 cents an hour.”
Not long afterward, a Bain affiliate, Brookside Capital Partners, acquired about 6 percent of Global-Tech Appliances, whose factory in many ways matched Mr. Romney’s description. The next year, Brookside and another Bain-related entity increased their stake to 9 percent, before selling their shares in 2000.
The Institute for Global Labour and Human Rights in a September 2012 publication; Betting against American Workers, (PDF) takes a historical look into Romney’s business relationship Global-Tech Appliances and China in general:
[Quoting Romney, noted:] “When I was back in my private equity days, we went to China to buy a factory there”
In the context of Mr. Romney’s present “get tough on China” stance, it would be critical for Mr. Romney to clarify exactly what he and Bain Capital did at the Global-Tech factory in Dongguan, China to push back against the evident abuses in the factory and to assure respect for human, women’s and workers’ rights.
It’s important to understand that in the global economy we have today that investments in China not only involve sophisticated wealthy investors like Romney but Obama and ordinary American workers invested in pension funds. During the debate Romney pointed this reality out as had the Times:
For many sophisticated and wealthy investors, as well as for ordinary workers invested in pension funds, China is a part of any diversified investment strategy. President Obama, a former Illinois state senator, has as much as $100,000 in a state retirement plan that contains shares of Sensata Technologies, the same auto parts company controlled by Bain that is closing its Illinois factory.
Thirdly, at the core of America’s Fortune 500 alliances with China is the massive amount of American brands that China manufacturers and imports to the U.S, a topic I’ve written extensively about.
The Nation’s international trade balance in goods and services worsened to -$44.2 billion in August from -$42.5 billion in July (revised), as exports decreased more than imports.
Not surprisingly, despite the global economic slowdown our trade deficit with China is still on pace to shatter last year’s all-time record for worst trade deficit with a single country.
While Romney may huff and puff, we all know politicians make promises to get elected and most often fail to deliver once in office. Perhaps someday voters might become a bit more sophisticated and discern bogus promises when made and hold campaigning politicians more accountable.