You can see this process playing out already. Sen. Chuck Schumer, one of the chief brewers of the Dubai storm, is sponsoring a bill that would impose a 27.5 percent tariff on all Chinese goods unless China revalues its currency. This tariff would be illegal under the rules of the World Trade Organization, but Schumer doesn't mind: His bill isn't going to become law, but it will advance the electoral prospects of the Democratic Party. Meanwhile, Republicans are readying their response. Sen. Chuck Grassley, the chairman of the powerful Finance Committee, is cooking up his own anti-China legislation.
So the stage is set for competitive China-bashing, and it's not clear that the administration will be able to keep the lid on. So far the Bush team has been responsible on China, coaxing it to revalue its currency for its own good while holding off Schumer-style pressure for a trade war. But there are signs that this forbearance may be running out. The Treasury may be getting ready to brand China a currency manipulator in a report that's due out around the time of Hu's visit, and the administration recently produced a "top-to-bottom" review of trade with China that was designed to sound macho. The scary thing is that if protectionist pressure mounts, China's response won't follow the Dubai playbook. We're not dealing with a private company that wants to know how high to jump. We're dealing with a brittle dictatorship that has limited space to accommodate American demands, even if it wanted to.
In the meantime actually doing good things doesn't enter the agenda:
But there is a limit to what the Chinese regime feels able to do, just as there is a limit to the political risks that the Bush administration will run to head off a trade war. The Bush administration isn't doing the main thing it could do to bring down the U.S. trade deficit: get serious about balancing the federal budget. Equally, the Chinese leadership isn't doing the main thing it could do: allow its currency to rise significantly against the dollar.
There's a powerful reason for China's recalcitrance. The country's technocrats were convinced years ago that revaluation made economic sense. But revaluation would cut the price of food imports, depressing earnings of Chinese farmers. Faced with simmering discontent among rural Chinese who have been left behind by China's coastal boom, the dictatorship fears that currency revaluation could unleash furious protest.
Our "leaders" are afraid to do the right thing because they fear elections. China's "leaders" are afraid to do the right thing because of fear of protests. Granted, I'm a much bigger fan of elections than protests, but I would be much happier with representatives doing the right thing for the country instead of the right thing for themselves.
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