Mitt Romney Risks China Trade War

By John Richardson

MITT Romney is playing a dangerous game with pre-election rhetoric that might end up tying220px-Mitt_Romney_by_Gage_Skidmore_6.jpg him to a policy decision that results in a US-China trade war, warns Stephen Roach, the former head of Morgan Stanley Asia and senior fellow at Yale University, in this article. in yesterday’s Financial Times.

The Republican presidential nominee has pledged that on day one of him being elected to the White House, he would declare China a currency manipulator.

Roach warns that this would lead to China imposing 20 percent import tariffs on all US goods, with the US doing the same.

Stock markets would swoon he says, and he concludes:

“By the autumn of 2013 there was little doubt of the severity of renewed recession in the US. Trade sanctions on China had backfired. Beleaguered American workers paid the highest price of all, as the unemployment rate shot back up above 10 percent. A horrific policy blunder had confirmed that there was no bilateral fix for the multilateral trade imbalance of a savings-starved US economy.

“In China, growth had slipped below the dreaded 6 percent threshold and the new leadership was rolling out yet another investment stimulus for a still unbalanced and unstable Chinese economy. As the global economy slipped back into recession, the Great Crisis of 2008-09 suddenly looked like child’s play. Globalisation itself hung in the balance.

“History warns us never to say never. We need only look at the legacy of US Senator Reed Smoot and Representative Willis Hawley, who sponsored the infamous Tariff Act of 1930 – America’s worst economic policy blunder. Bad dreams can – and have – become reality.”

The problem is that as Singapore-based trade lawyer Ed Sim told us in June, Romney’s pledge looks as if it isn’t just election rhetoric.

“We recently had an audience with Mitt Romney’s trade adviser in Washington DC,” said Sim.

“He confirmed that, yes, on day one of him being President, Romney would declare China as a currency manipulator.”

Sim added that the Chinese would regard Romney’s declaration as a strategy to prompt negotiations, rather than a firm statement of policy.

“How would China react? Pragmatically, it might ignore the rhetoric during the first few days of a Romney administration,” said Sim.

But what if Romney feels compelled to follow through with his pledge in order to keep an increasingly factionalised Republican Party happy?

And since June, growth has slowed down in China far more than most people expected and so the mood in Beijing could well have changed.

A strongly worded commentary in the government-run China Daily, which was published this Monday, suggests that the mood might indeed have shifted.

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