19 Mar What ‘House of Cards’ Gets Right About China
I’m a big fan of “House of Cards.” So it’s an added pleasure that this brilliant series now has some relevance to my work life. For the past seven years, I’ve urged Washington to stand up to China on its currency manipulation and other policies that have helped to erode U.S. manufacturing employment. Now, I’ve succeeded … at least on Netflix. A World Trade Organization case, brought by the fictional Walker/Underwood administration against China for manipulating its currency, is part of a Sino-American policy thread in the show’s second season. But there is a real lesson the Obama White House can learn from its fictional counterpart: Pressuring China’s government on its damaging trade and currency practices actually works.
The television writers have done their homework. China and other mercantilist governments manipulate their currencies by deliberately devaluing them, effectively taxing U.S. exports while generously subsidizing their own. The hallmarks of this practice are a combination of high foreign cash reserves and large trade surpluses, both of which China has in abundance.
But there’s ample evidence of manipulation beyond that. At various points, the Chinese government has pegged the yuan to the dollar, and in an otherwise volatile marketplace of currency exchange, the dollar-to-yuan rate long resembled a flat line. But from 2005-08, and again since 2010 — and only after direct threats of sanctions from Congress or the administration — Beijing has slow-walked an appreciation of the yuan, essentially doing just enough to earn a gentleman’s C.
The evidence is serious enough that the International Monetary Fund, the World Trade Organization and the U.S. Treasury Department closely monitor the yuan’s rate. The currency issue remains a major challenge, says Senate Finance Committee Chairman Ron Wyden (D-Ore.), who has pressed the issue with Treasury officials. But rarely does Washington intercede.
Meanwhile, its effects on the American economy have been very real. As the U.S. bilateral trade deficit with China has grown — to a record $318 billion last year — manufacturing jobs have disappeared, and even a highly touted “resurgence” is losing momentum, with annual employment gains falling every year since 2011. Some estimates say trade deficits with China alone between 2001 and 2011 have cost America 2.7 million jobs.
President Barack Obama came into office, arguing that China got away with its cheating because his predecessor, George W. Bush, didn’t hold Beijing accountable. He promised to do better. And while his administration deserves credit for following through on some trade enforcement actions brought by industry and labor, it has done little to set itself apart from the Bush years. In fact, the yuan’s rate of appreciation is slower today than it was between 2005 and 2008.
The reticence of U.S. lawmakers to take this issue seriously notwithstanding, the fact remains: In combination with an exploitable workforce, a notoriously lax regulatory regime and a massive program of subsidies, China still intervenes in currency markets to boost to its export-dominated economy. The yuan has actually depreciated steadily this year, and just in the past week, the People’s Bank of China engineered its largest controlled drop in 18 months.
So what would happen if the United States put its full weight into ending the currency manipulation that Beijing and other trading partners use to undermine American manufacturers? Certainly not the trade war that some have predicted. And that’s because, just like in “House of Cards,” the infrequent threat of action by Washington has always goaded China to acquiesce.
“A free-floating currency is inevitable,” confides a Chinese billionaire to Frank Underwood on the show. “But it’s important that it looks like America forced us out, not like we gave in.”
With that in mind, we should goad China again.
Washington has had ample opportunity to take action on currency manipulation, be it in the Treasury Department’s semiannual currency report or by enacting currency legislation that has cropped up in recent Congresses and has enjoyed bipartisan support. A currency bill overcame an attempted Senate filibuster in 2011 and another passed the House with more than 300 votes in 2010.
But we haven’t acted on these opportunities. And here’s where real-life Washington just doesn’t match its “House of Cards” counterpart: Our elected officials fail to appreciate the negotiating power America wields as the world’s largest consumer market. That leverage means Beijing will respond smartly to a show of strength at the trade table.
Imagine, for a moment, if the Obama administration were to take currency manipulation as seriously as Underwood’s boss does. Recent research suggests that the United States would reduce the trade deficit by as much as $500 billion per year if global currency manipulation were eliminated in three years. It also would increase U.S. gross domestic product by as much as $720 billion a year, create as many as 5.8 million jobs and reduce the federal budget deficit by $266 billion.
“House of Cards” reinforces much of the cynicism that Americans and Chinese feel about politics and policy in Washington: Its conspiracies and intrigue are too good (or bad) to be true. But the show has laid out with great honesty a number of serious policy debates, of which our trading relationship with China is only one.
Washington doesn’t need more Frank Underwoods, but it can learn a thing or two from the show. Fighting currency manipulation is smart policy, not just great television. As real-life Sen. Sherrod Brown (D-Ohio) put it recently, “The word on the street is that the Chinese leadership is watching with great interest.” Undoubtedly. And ultimately, it’s not the drama they’re tuning in for. They’re hoping the Obama administration doesn’t get any ideas.
Scott Paul is president of the Alliance for American Manufacturing.