Republicans do it. Democrats do it. Donald Trump does it, Mitt Romney did it, and Barack Obama did it, too. We’ve been doing it … well, maybe if not since the horse and carriage then at least since the first horse and carriage rolled off the Shenzhen assembly line and got shipped to Wal-Mart. That was a long time ago, probably.
We’re talking about China-bashing, and specifically the claim that China is cheating to underprice all the stuff it sells to the United States, in an effort to drive U.S. companies out of business. It’s a hoary claim that’s come up in every U.S. presidential race in memory. And it just got harder to defend.
The International Monetary Fund yesterday agreed to include China’s currency, the yuan renminbi, in the basket of currencies it uses to value its “special drawing rights.” If you feel like stopping right there, hold on a second. This is esoteric stuff, and you don’t really need to know exactly how a “special drawing right” works (it’s a special kind of money that the IMF can distribute to countries in very rare circumstances—three times in 50 years, to be exact).
What matters is that it’s a statement by the world’s central bank that China’s currency is stable, accepted, and traded freely enough that countries can use it to store their national treasury. It joins the dollar, euro, pound, and yen as accepted units of international accounting—a currency that countries can keep on hand to pay their expenses and settle their debts. This is the kind of validation from international financial regulators that China has wanted for a long time.
So you can cue up the outrage. Bernie Sanders, Marco Rubio, and Donald Trump have all made hay with accusations of China’s “currency manipulation.” It’s an old reliable campaign line: It sounds sinister, it’s an easy way to blame trouble with the U.S. economy on folks an ocean away who don’t get to vote in our elections, and hardly anyone knows what it means.
In truth, while there are plenty of good reasons to be critical of China, currency manipulation isn’t one of them. The basic idea behind the charge is that China has bought up dollars and flooded the world with yuan to make the yuan less valuable, making Chinese exports cost less and blocking American imports. Years ago, this was probably true. In recent years, though, China’s buying up dollars has probably done the U.S. more good than harm (it has used them to buy U.S. Treasury bonds). And more recently, China has stopped doing it. In fact, if China has “manipulated” its currency at all, it has been to strengthen the renminbi and keep it from sliding too fast as China’s economy cools.
So at this point, all the talk of Chinese “currency manipulation” should be over with. But it won’t be, because the notion that China has rigged the game feeds into a bigger story of how other countries are stealing U.S. jobs by pricing their goods so cheaply that U.S. companies can’t compete. According to this narrative, trade is a one way street: We used to make a lot of stuff—cars, televisions, computers, etc.—until other countries with low wages and rigged currencies started making those things more cheaply and selling them back to us.
But this story hasn’t reflected reality for a long time. There are certainly countries where it’s a lot cheaper to manufacture than China, like Bangladesh and Malaysia. Your iPhone isn’t made in China because it’s the cheapest place to make it. It’s made in China because nobody but Foxconn, Apple’s main contractor in China, can ramp up production with the speed and the quality control that Apple demands. Worth noting: China’s average wages have tripled in a decade; if U.S. wages had risen that fast, the average U.S. worker would now be earning roughly $107,000.
Given that record of wage growth, you’d think presidential candidates and their advisers would focus more on how we can sell more stuff to China than on how we can make Chinese-made products more expensive here. China does have plenty of trade barriers, and its rising middle class spends surprisingly little of their income (a problem not just for U.S. companies, but Chinese ones too). But in the long run, China’s 1.4 billion citizens ought to represent a gigantic opportunity for U.S. companies.
The IMF’s move yesterday shows that the rest of the world has moved on from the tired idea that China is selling stuff too cheaply. It might take a little longer for the U.S. electorate. They’ve been told for a long time that trade is a rigged game in which other countries are cheating and the way to win is to buy less stuff from abroad. That’s a reliably popular stump speech. It’ll take a brave candidate to tell voters it’s not true.