If Gary Locke Goes To China...

Posted by spaul on 03/09/2011

Our new man in China, Gary Locke, will have a big, bilateral economic mess to help clean up. The United States posted a record $273 billion trade deficit with China last year. China continues to slow-walk the Yuan’s appreciation against the dollar. And, China shows few signs of easing up on its mercantilist and protectionist policies that help to keep our export outs, and give Chinese production an unfair advantage in our market and others around the world.

Secretary Locke—announced by the President today to become our next Ambassador to China if confirmed by the Senate—compiled a pretty good record at the Commerce Department on these issues. The Administration stepped up trade enforcement to a degree we have not seen for 25 years, including landmark cases on Chinese tires and clean technology products. But, the Commerce Department refused to consider China’s currency manipulation as an unfair subsidy, which has prompted Congress to consider stepping in.

The mess that Ambassador Locke would need to clean up has been decades in the making. President Clinton’s team negotiated an exceptionally weak deal as China entered the World Trade Organization. The U.S. agreed to lower tariffs on Chinese products, end its annual trade-linked review of China’s human rights record, and diminish many of our trade enforcement options. In effect, the deal tied America’s hands even as China’s economic power—and mercantilism—expanded.

President George W. Bush, with a mounting Chinese trade deficit, denied every single petition for relief from Chinese import surges filed by American industry. So, for the first eight years after entry into the rules-based trading system, China wasn’t asked to follow the rules. Cheating became endemic.

Meanwhile, we’ve been asleep at the switch. China’s strategy has cost American jobs up and down the technology ladder. China will file more patents this year than America. China may, in fact, pass the U.S. to become the world’s top manufacturing nation this year; it is a title we have held for 110 years running. China now has the world’s fastest supercomputer and $2.78 trillion in foreign currency reserves.

When China is not playing by the rules, we must call them on it, through aggressive trade enforcement and clearly defined consequences for Beijing if it does not revalue its currency in a meaningful way. We must be careful not to enrich the regime in China any further, which means lowering our staggering trade deficit with China. If China refuses to honor its commitments, we should consider, as Paul Krugman suggests, erecting a steep, unilateral tariff until China does comply. Ultimately, China needs access to the U.S. market more than we need China’s debt financing.

Can Secretary Locke deliver this message forcefully to Beijing? I think he can, if he’s given that card to play by the White House. But that’s a pretty big if. The record $273 billion trade deficit with China should have been a wake-up call that things must change.

This blog is cross-posted on The Huffington Post.

Related recent Blogs

@KeepitMadeinUSA on Twitter