Perhaps I shouldn’t take campaign promises too seriously. But candidates say things, and my natural reaction is to assume they mean them. I have been proved wrong before, and perhaps I’m falling into the same old trap, but I’m going to assume Governor Romney means at least a little of what he said on trade in last night’s debate.
Based on what he said, I’m going to talk briefly about what a President Romney would (might?) do on trade. Let me focus on two issues: Trade with Latin America, and China’s alleged currency manipulation.
Trade with Latin America
Last night, Governor Romney said:
I’m also going to dramatically expand trade in Latin America. It’s been growing about 12 percent per year over a long period of time. I want to add more free trade agreements so we have more trade.
This all sounds great. He is saying positive things about free trade. Excellent. But what does he mean?
Latin America runs from Mexico down to Argentina. So far, we have trade agreements with: Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Peru. So who’s left? Venezuela is obviously not a great candidate. And Argentina isn’t either – they’ve been quite protectionist and inward-looking recently. So what major trading partners are we talking about? Brazil is the most obvious one. But U.S.-Brazil trade frictions are said to have played a big part in killing the proposed Free Trade Area of the Americas in the 1990s, and those frictions are still pretty high today, with, among other things, Brazil complaining about U.S. monetary policy driving down the value of our currency (see below for more on currency issues).
I’m all for free trade with Latin America, and I’m happy to hear Romney supporting it. But in practice, it’s not clear how much can be achieved.
China’s Alleged Currency Manipulation
This issue has been discussed ad nauseam already, but let me make a quick political point. Here’s what Romney said last night:
China has been a currency manipulator for years and years and years. And the president has a regular opportunity to – to label them as a – as a currency manipulator but refuses to do so. On day one, 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.
My colleague Dan Ikenson explains here why Romney shouldn’t follow through with this, and I agree. But what I want to focus on is what he will do, because, as is probably obvious, politicians don’t always do what they should!
It seems to me that Romney has dug in pretty deeply on the issue of labeling China a currency manipulator. I can’t see how he can step back from that without some major embarrassment. As a result, I think that, if elected, he will do something on day one that can be characterized as “labeling China a currency manipulator”. (He has mentioned an executive order, but it’s more complicated than that, as the Secretary of Treasury needs to be involved, too). But the dirty little secret here is that labeling China a currency manipulator just triggers consultations on the issue. Which is why, actually, I think Romney is pushing this – he knows it doesn’t mean much.
But then you’ve got the issue of imposing tariffs on China as a response, presumably by instructing the Department of Commerce to change its method of calculating countervailing duties, so as to provide for extra duties on Chinese goods based on the currency practices. This would be a more serious action (and would probably violate WTO rules), one that would have a direct impact on prices of Chinese imports (it would raise them!).
But look at the language Romney uses here. He says he will do this “if necessary”. Here, then, he leaves himself wiggle room. He can take some time to negotiate with China, study the issue, and ultimately decide that the tariffs are unnecessary.
For whatever that’s worth, which may not be much, that’s my guess as to how the Romney team is thinking about this issue.