Will the Chinese Play the U.S. Once More?

With pressure building on the administration to tell the truth on China’s currency manipulation, and a report required by law on April 15, the Chinese government demonstrated just how sophisticated it is about playing U.S. politics.

Setting aside the harsh rhetoric of the last months over arms to Taiwan and the president’s meeting with the Dalai Lama, the Chinese government announced its willingness to discuss the possibility of sanctions toward Iran over its nuclear programs. Chinese President Hu Jintao pleased the administration by agreeing to attend the president’s security summit in Washington this month.

The Chinese leader is unlikely to have made that commitment without a clear sense that the administration will once more choose not to declare that China is manipulating its currency. At the same time, Chinese officials suggested that the currency peg might be soon be relaxed, reinforcing its defenders who say that “threatening China” (that is telling the truth about its policy) is not the best way to persuade it to allow the renminbi to appreciate against the dollar.

In many ways, this episode reflects a syndrome that has characterized U.S. economic policy over the last decades.

As a global power, the U.S. has many security concerns—North Korea, Iran, Taiwan, securing our bases, patrolling the oceans, two wars and more. With global corporations driving U.S. trade policy, officials have often been willing to exchange trade concessions for cooperation on security concerns.

Why challenge South Korea’s mercantilism if it will send troops to Vietnam? Why push the Japanese when we need to secure our bases there? Why call out the Chinese if they show signs of cooperating on Iran?

So we ignore China’s mercantilist policies. But even the International Monetary Fund now declares that China’s currency and export policies are dangerously destabilizing. China now captures over 80 percent of the U.S. trade deficit in goods. President Obama has rightly said we can’t go back to the old economy, where we borrowed money from abroad, largely from China and oil producers, to pay for imports made abroad, often by factories our companies had moved from America. But we seem to be going back there already.

We now face long-term mass unemployment. Wages are stagnant or falling. As the president has said, the economy can’t prosper unless we once more make things in America. The Chinese are using the full array of their mercantilist policies, from pegged currency to subsidies for national champion industries, to capture the emerging green energy industries—solar, wind, etc. Their leaders make their economic strategy their first priority.

Eventually, we are going to have to put rebuilding our economy at the top of our security concerns. Until we do, leaders as sophisticated as the Chinese will have little trouble playing the U.S.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future