China Barbs Reach Fever Pitch on Campaign Trail

What a WTO complaint and threats of a currency fight really mean for the economy

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International trade disputes are often quiet, even dull affairs, but then, they don't all involve China, the U.S. auto industry, and a tight presidential election.

Speaking today in Ohio, President Obama announced that his administration is complaining to the World Trade Organization about subsidies that make Chinese auto parts cheaper, as well as Chinese duties on U.S.-made cars. The announcement unleashed a volley of heated political rhetoric as candidates sought to capitalize on the opportunity to pounce on a fellow economic superpower—and each other.

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"Those subsidies directly harm working men and women on the assembly line in Ohio and Michigan and across the Midwest. It's not right; it's against the rules; and we will not let it stand," Obama said. He also criticized Republican candidate Mitt Romney's private equity experience. "Ohio, you can't stand up to China when all you've done is send them our jobs."

For its part, China filed its own complaint with the trade panel Monday, charging that a U.S. antidumping measure is unfair.

Obama's move reopened a contentious campaign issue. Romney has often accused China of manipulating its currency, keeping the value of the renminbi currency artificially low, which promotes Chinese exports. Though the Obama administration has filed several complaints against Chinese trade policies, it has refused to name China as a manipulator.

As a result, Romney today once again accused Obama of being soft on China.

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"President Obama has spent 43 months failing to confront China's unfair trade practices," Romney said in a statement reiterating that he would take China to task for unfair trade practices on "Day One" of his presidency. Romney has in the past promised that as president, he would label China a manipulator.

Despite the political posturing, the action announced by Obama may yield little economic change and certainly none before Election Day. The WTO can take a year or more to settle trade disputes. And exactly how powerful these complaints might be is also uncertain.

"It's a rap of the knuckles against China," says Gary Hufbauer, a fellow at the Peterson Institute for International Economics. "[China] will phase out its subsidies, but will that make a big difference for American jobs in the auto industry? I'd say no."

While the volume of the trade dispute may outweigh its ultimate impact by Election Day, Hufbauer also says that Romney's outspokenness on China may likewise be inflated by campaign season.

"The 'out' party in presidential elections criticizes the 'in' party for being soft on China. That really goes back a long time," he says.

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Also, Romney's stance puts him at odds with a crucial constituency and one he would need in his corner should he win the Oval Office: big business. Earlier this summer, U.S. Chamber of Commerce President Thomas Donohue said that he had suggested to Romney that he could lay off his renminbi rhetoric as a campaign issue, pointing to recent moderate appreciations in the currency.

Donohue also touted the power of U.S. economic ties with China, pointing to Chinese investment as a job-saver for some U.S. businesses.

"Often, companies are bought when they are in some turmoil, when there is a need for capital," he said.

There could also be broader economic effects, not the least of which is angering a country that is helping finance the U.S. government through its large purchases of U.S. debt.

Unlike many issues in the election, there are no clear partisan lines when it comes to trade with China. Politicians of both parties have supported bills aimed at ending Chinese currency manipulation.

The topic also could appeal to an electorate hurting for jobs. The left-leaning Economic Policy Institute estimated earlier this month that the U.S. had lost more than 2.7 million jobs over 10 years as a result of its trade deficit with China. And while many Americans may perceive that Chinese growth is hurting their job prospects, most Americans also want good relations with China. A Gallup survey released in April found that 81 percent of U.S. adults think having a close relationship with China is a good thing.