It was only a couple of weeks ago that I wrote in this column of the economic dangers posed by threatening to impose a 27.5 percent tariff on all imported Chinese goods unless China severs it currency link to the dollar, which New York Sens. Charles Schumer and Hillary Clinton propose in S. 295. But the dangers are so great and the protectionist fever is running so high among our elected officials (even some Republicans, such as Sen. Lindsey Graham of South Carolina and Mike DeWine of Ohio, have signed onto the Schumer-Clinton tariff) that I feel compelled to speak out against this pernicious idea once again.
Although the New York Times editorial staff and I frequently disagree, on this issue we see eye to eye. The Times editorial page called the Schumer approach "an all-around dreadful strategy" because it is based on "a misunderstanding of both China's financial situation and the cause of American economic woes." Our trade deficit with China is not a consequence of the Chinese currency, the yuan, being undervalued.
Last week, my friend and co-chairman of the Free Enterprise Fund, Larry Kudlow, made similar points, putting the question succinctly and starkly when he asked in his column why the United States threatens economic warfare against China by signaling, as the Senate did three weeks ago, a willingness to bludgeon the Chinese with the Schumer-Clinton tariff.
Schumer offered his extortionate tariff on April 6 as an amendment to S. 600, the Foreign Affairs Authorization Act. Senate Republican leaders attempted to kill the amendment with a motion to lay it on the table, i.e., dismiss the amendment, but the motion was defeated 67-33. The Senate has yet to vote on the amendment itself, but the overwhelming vote (of "veto-proof" magnitude) against the tabling motion indicates Schumer's tariff could easily be approved by the Senate with bipartisan support.
Kudlow correctly observed that trade and currency protectionism "blunt economic growth and sour international political relations." He predicted a "geopolitical and economic mess brewing in northeast Asia" as a result. I agree. Protectionist saber-rattling always threatens to touch off a trade war, especially when the objective of the attempted economic extortion puts a trading partner in a double bind as the Schumer-Clinton tariff does: China is being maneuvered into a corner in which it must either destabilize its currency by letting it float or stand by idly while its ex?ports crash up against an insur?mountable American tariff wall. No nation can ignore such a threat to its economic well-being.