Morgan Stanley’s Stephen Roach has just finished a three-day tour of Beijing, meeting, separately, with senior Communist party leaders and three touring US Senators, two of whom are sponsors of a bipartisan bill that would put 27.5%.tariffs on Chinese goods if the country does not further revalue its currency by a similar amount.
Roach’s observations are both astute and chilling.
Chuck Schumer is a very smart and savvy man. He is using the bully pulpit of a prominent politician to put so much pressure on China that it will have no choice other than to give. Nor does he have much doubt that this approach will work. "This is exactly what I did in Japan in 1986," he said - apparently the last time he was in Asia. "It worked in Japan and it will work in China." Senator Schumer is not Reed Smoot - Utah’s protectionist senator who co-sponsored the Smoot-Hawley Tariff Act of 1930 that led to the Great Depression. In the end, Schumer doesn’t want tariffs - he wants to go down in history as the man who made China blink. But he is perfectly prepared to play high-stakes political poker in order to achieve this objective. So is the rest of the US Congress. The big risk is that China calls Washington’s bluff and the two parties start to stumble down the very slippery slope of trade frictions and protectionism.
While the senators claimed they were there to listen and learn, my guess is that this was a classic window-dressing sojourn. As I probed them on the issues, they had all the answers down pat - their minds were made up. Schumer actually conceded the point on the structural macro linkage between the trade deficit and the national saving problem - a first for a major China basher. This, of course, has been a major leg of my own macro stool for longer than I care to remember. "I agree with you," he said, "America doesn’t save enough and we consume too much." Fine to that point, but then he turned the logic inside out: "I care deeply about the loss of US manufacturing jobs to China. If I am successful in cutting our trade deficit with the Chinese, not only will those jobs come back home but I will have succeeded in boosting US saving and cutting excess consumption. My bill can do all that and more." I am rarely speechless, but at that point, I started to choke on a huge bite of watermelon. "Let me get this straight," I gasped, "tariffs will boost saving?" Too late - he was already off to face the ever-present battery of cameras and microphones.
In a short span of 24 hours, I had heard it all on both sides of the China debate. The Chinese leadership was amazingly transparent in expressing their own hopes and concerns at a critical juncture on the nation’s extraordinary journey. And then the Washington crowd blitzed into Beijing with an agenda of its own. What was missing was a willingness to bend - for both sides to come together in the best interests of the collective whole. The great paradox of globalization never seemed more vivid - our economies may be global but our politics remain decidedly local. Unless we resolve that paradox, I am afraid the win-win dreams of globalization advocates could remain fleeting.
Given the tale Roach recounts, AsiaPundit would also have been more impressed with the CCP leaders than the senators. However, it is also worth noting that the CCP are very keen to impress investment bankers and would be very well coached on what to say and what not to utter.
Similarly, the senators are playing for a domestic audience. One would hope that Schumer doesn’t really think that raising prices on Chinese goods would boost US savings or bring labor-intensive factories back from China (although it could benefit textile and footwear makers in places such as Vietnam and Bangladesh).
March 23rd, 2006 at 9:05 am
Once upon a time, I would have considered a Democrat in the minority would have no chance of getting a bill like this through. Protectionist guys (Pat Buchanan, for example) were considered outside the Republican mainstream.
These days, I’m not so sure.