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Hu Jintao and Barack Obama's theater of the absurd

By Peter Morici
web posted January 24, 2011

Hu Jintao and Barack Obama in Washington, D.C.President Hu Jintao visited the United States, leader of an industrial juggernaut and heir apparent to American global economic leadership.

China is growing at a breakneck pace, its exporters capturing a lion's share of global markets in strategic industries, and its citizens enjoy rising prosperity and economic security.

The United States endures a mediocre growth, its businesses fleeing for Asia and Russia, and its citizens endure falling wages and uncertain futures.

This is not how the historic struggle between socialism and capitalism was to end, but it is how President Obama willed it.

Abroad, the President refuses to defend American capitalism, and at home, he recklessly abuses private enterprise.

International competition between China and the United States is governed by rules—spelled out by the World Trade Organization and other agreements. President Obama has stood idle while China violates the letter and spirit of those rules to boost exports, restricts imports and enjoy steroidal growth that handicaps U.S.-based businesses and destroys American jobs.

Economists no less prominent than Federal Reserve Chairman Ben Bernanke, Nobel Laureate Paul Krugman, and former Assistant Treasury Secretary Fred Bergsten have joined me in enumerating how China's undervalued yuan affords its exports huge subsidies, slows U.S. growth and raises unemployment.

Krugman, Bergsten and I have suggested strategies—an import tax, counter invention in currency markets by the Treasury and a tax conversion of dollars into yuan.

Last fall at the UN, President Obama exclaimed if China does not move the United States can act unilaterally. Hu called Obama's bluff, and the President flinched.

No surprise—China won't let markets determine the value of the yuan any time soon.

Businesses are leaving the United States because of Chinese procurement regulations. For example, China requires 70 percent of the parts in turbines purchased by state-owned wind farms be produced domestically, and 80 percent of China's wind farms are state owned. As China and the United States are the two largest markets for wind turbines, only a fool would not locate production in China to service both markets.

Subsidies and similar problems persist in solar panels and for other critical emerging technologies.

The President is aware of all of this, he complains bitterly but does little, and China captures huge shares of world markets. China's success has little to do with cheap labor, because wages contribute only small amounts to high tech product prices.

The President could impose similar procurement requirements on turbines, solar panels and other products purchased with government money, and impose countervailing duties on Chinese subsidies, but he has been too busy handicapping U.S. private enterprise to be bothered.

The President obsesses endlessly about increasing social spending and federal taxes, and imposing regulations that raise the cost of doing business—for example, new health care taxes and reforms, new ineffective but burdensome bank regulations, and new permitting rules shutting down U.S. oil and gas development.

It should be no surprise small businesses are dropping health plans and even more Americans can't afford health insurance; hundreds of regional banks have failed and surviving institutions can't provide adequate credit to small businesses; and gasoline prices are soaring and BP is giving Kremlin-controlled Rosneft a 5 percent ownership stake to obtain drilling rights in Russia.

At least the Romans could take solace—they did not elect Nero. Americans chose Barack Obama to heap kerosene on anyone seeking a profit.

Seeing America's workers unemployed and living standards falling, and Barack Obama afraid to respond to Chinese initiatives, President Hu will see little purpose in heeding U.S. pleadings for market determined exchange rates and economic reforms.

To save face, President Obama refocused summit discussions on China's shabby human rights record and political reforms. This may provide the President good press coverage but it is Theater of the Absurd.

On human rights and political reform, the United States has much less leverage than on economic issues. Why should President Hu embrace U.S prescriptions on matters that strike to the heart of the Communist Party's grasp on power?

Simply, President Obama talks the talk but doesn't walk the walk. No one sees that better than President Hu. ESR

Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.

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