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President Barack Obama and First Lady Michelle Obama welcome President Hu Jintao of China at the North Portico of the White House for the State Dinner, Jan. 19, 2011.
Dr. Peter Morici: This week
President Obama made big news meeting with China’s President Hu, as did House
Republicans passing legislation to repeal the recent health care reform law.
Both accomplished little for the history books.
US-China Summit
The summit joint-communiqué indicated the two leaders and their governments
agreed to continue their relationship as it has been these last several years,
and not to tackle difficult conflicts in the realms of economics (e.g., the
undervalued yuan, Chinese discrimination against US companies operating in
China, and US export prohibitions on civilian technologies with potential
defense applications), human rights (e.g., political prisoners and censorship),
and security (e.g., China’s air and naval buildup and the American naval near
China).
That said, the summit was a big success for the two leaders. The moderate path
toward China adopted by President Obama and President Hu’s meeting with US CEOs
shored up President Obama’s efforts to present himself to voters as moving
toward the center (Americans don’t like confrontation) and as becoming more
business-friendly. President Hu got the recognition China has been seeking as a
world power and equal to the United States in the Pacific and on a wider global
stage.
Regarding economic issues, President Obama squandered a key opportunity. Most
folks that understand economics recognize China’s undervalued currency is
slowing US growth and contributing to US unemployment and wage stagnation—the
chorus includes liberals like Nobel Laureate Paul Krugman, conservatives like
Ben Bernanke, moderates like Peterson Institute Director Fred Bergsten, and
myself.
Over the last two years, Krugman and Bergsten have joined me in recommending
offsetting US actions—some kind of tax on imports or currency conversion, or
currency market intervention. Bernanke cannot suggest policy responses as
Chairman of the Federal Reserve—exchange rates are a Treasury issue.
The President has publically stated the United States has options if China won’t
revalue its currency. Also, the United States could mirror China’s procurement
and technology policies that discriminate against US exports into China and
sales of US firms operating in China.
In the past, presidents have been politically constrained against taking action
by a basic divide in the business community—US firms facing import competition
from China want direct US action but US firms established in China were
satisfied enough not to want to upset Beijing with provocative US initiatives.
This year matters came to a head—both groups are complaining loudly about China.
President Obama could have taken a much harder line with President Hu, and
carried through on actions to offset Chinese protectionism if China does not
move substantially on US concerns.
Instead, President Obama continued to rely on failed tactics of the past—he
asked President Hu to act, and President Hu said no. President Obama facilitated
a meeting between US exporters and firms operating in China with President Hu,
while those US firms competing with imports from China got stiffed. In doing so,
he helped President Hu, once again, divide the US business community, but
President Obama accomplished little to change China’s policies.
President Obama even let pass rather provocative statements by President Hu
regarding the dollar’s status as a reserve currency. President Hu was ungracious
in those comments, especially considering the treatment and help he received
from President Obama.
Most of the announced new deals for US exports into China were going to happen
anyway and do not amount to a lot against a one trillion dollar bilateral trade
deficit over the next three or four years.
On human rights, President Obama did get a small victory. For the first time,
President Hu mentioned universal human rights—that concept implies sovereign
governments are accountable to international norms. That is something Chinese
leaders and the Communist Party have viewed as a direct affront to China’s
sovereignty. Whether President Hu acknowledging this concept results in
substantive changes in Chinese behavior is another story. China’s internal
treatment of dissidents goes to the heart of the Communist Party’s strategy of
permitting criticism with prescribed boundaries but squelching dissent it views
as destabilizing.
The summit was great theater but accomplished little for the United States, but
it score political points domestically for both presidents.
Health Care
House Republicans passed a health care reform repeal bill with no meaning. It is
dead on arrival in the Senate. Republicans do have the opportunity to offer
amendments to the new law by attaching more modest revisions to appropriations
bills or by offering more narrow legislation to Senate but they really don’t
have any great ideas to offer.
Nothing the Republicans talk about really deals with the two most fundamental
problems—the lack of health insurance coverage for 50m Americans and the much
higher cost of health care in the United States than in Europe. Germany and
Holland, for example, have private health insurance, universal coverage and
spend 12% of GDP on health care, while the United States has huge coverage gaps
and spends 18%. Simply, those countries have tackled the tough cost
problems—health care bureaucracies, hospital management, overuse of services,
the high cost of drugs, and civil litigation. Neither the President’s new law
nor what the Republicans propose to replace it effectively addresses those cost
issues.
Proposals offered by Republicans come down to retreads of old failed ideas of
the past—medical savings accounts, vouchers to buy health insurance, etc.
The Republicans are squandering their mandate by putting on a big show and
accomplishing little.
The Obama administration is right to focus on helping US firms gain market access on a level playing in China, says Steven Okun, chairman at The American Chamber of Commerce, Singapore. He shares his views on the US-China summit, with Peter Morici, professor, Robert H. Smith School of Business at University of Maryland, Kirby Daley of Newedge Group and CNBC's Lisa Oake:
Peter Morici,
Professor, Robert H. Smith School of Business, University of Maryland,
