Remember the “jobless recovery”? It was a common complaint a few years ago from economists and politicians who sought out a dark side to the U.S. economic expansion. The economy is growing, their argument went, but isn’t putting people to work.
The economy was generating jobs then and continues to do so today. The U.S. added 7.8 million jobs in the last four years. It created 180,000 jobs in March, as the unemployment rate dipped to 4.4 percent from 4.7 percent. The government revised upward by 32,000 the total of new jobs created in January and February.
Remember “McJobs,” the other favored expression to dismiss the quality of jobs created? Well, average hourly wages rose a solid 4 percent over the last year. Even a housing slump and the subprime debt mess can’t seem to hobble a resilient U.S. economy.
But a trade war with China could.
More than two dozen anti-China bills were floated in the last session of Congress. The most incendiary, sponsored by Sens. Chuck Schumer (D-N.Y.) and Lindsey Graham (R-S.C.), would have penalized all Chinese imports with a 27.5 percent tariff unless China moved more quickly to allow its currency to rise in value against the dollar. None of the bills became law. But anti-China sentiment continues to grow in Congress.
Democrats say China is to blame for the loss of tens of thousands of American jobs and must be punished for manipulating its currency to make its exports so cheap for American consumers. China accounted for $232.5 billion of the U.S. trade deficit last year. That was the highest trade deficit the U.S. has ever recorded against a single country; it was nearly one-third of the record $765.3 billion trade deficit.
The Bush administration challenged China on government subsidies in February and slapped countervailing duties on a relatively minor Chinese export — glossy paper — at the end of March. This reversed 23 years of policy in dealing with developing economies and could allow copycat complaints from other U.S. industries like steel and textiles that claim they have been harmed by imports.
Three weeks ago, the administration got tough with China on piracy of intellectual property. The U.S. filed two complaints against China with the World Trade Organization. One targets copyright piracy and the other market access for U.S. movies, DVDs, books and music. These cases have been a long time coming — China by its sheer size is the world’s most notorious pirate of intellectual property. On Monday, the administration placed China and 11 other nations on a “priority watch list” for copyright piracy.
If the White House sticks to piracy issues, it will have a far better approach than the ideas bubbling in Congress. The administration’s action on that front puts these disputes where they belong, within the WTO dispute system.
The biggest danger the U.S. faces in navigating the U.S.-China relationship is congressional action that would violate WTO laws, such as the proposed 27.5 percent tariff bill. That kind of confrontation outside the boundaries of the WTO could spark retaliatory action by China, which has weapons of its own that could be used in a trade war.
China holds about $1 trillion in foreign exchange assets, much of it in dollars. Any decision to move those assets out of dollars would drive up U.S. interest rates and create a risk of recession here.
Leaders on Capitol Hill say they don’t want to start a trade war. But then, nobody wanted to start a trade war 77 years ago when two Republicans, Sen. Reed Smoot and Rep. Willis Hawley, sought to address American outrage over “unfair” competition from foreign goods and protect American farm jobs. The Smoot-Hawley Tariff Act of 1930 sparked a bout of tit-for-tat protectionism that caused world trade to implode, deepening and lengthening the Great Depression.
Washington, be careful. Fight lawlessness, but don’t head down a protectionist road to disaster.
