NEW YORK ( TheStreet) -- Governor Romney is right. The U.S. must get tough with China to restore growth and good paying jobs.
The idea behind free trade appears compelling. Let each nation specialize in what it does best to raise productivity and incomes. But Americans don't share in those benefits, because President Obama lets China and others cheat on the rules, with only token opposition at the World Trade Organization.
Through the WTO, industrialized nations have greatly reduced tariffs and limited domestic policies that discriminate against imports or artificially boost exports. However, to optimize trade and create good jobs for all, every nation must play by the same rules, and exchange rates -- which translate prices for U.S. goods into yuan, euro and the like -- must be free to adjust to reflect differences in national production costs.
Exchange rates are established in markets, where exporters, importers and investors buy and sell currencies needed to conduct international commerce. Unfortunately, China and other Asian governments blatantly manipulate those markets. Lacking a credible American response, this has ruinous consequences for growth and American workers.Also, Beijing imposes high tariffs -- for example, about 25% on autos -- subsidizes exports, requires state agencies and enterprises to buy Chinese products, and refuses to adequately protect U.S. patents and copyrights. These promote Chinese manufacturing in industries where high productivity and superior product designs would make American goods more competitive. It compels companies like GM (GM) and Apple (AAPL) to locate facilities in China and give away knowhow to Chinese partners in Beijing-mandated joint ventures. Ultimately, U.S. companies heavily invested in China become apologists for Chinese policies, and work to block meaningful U.S. actions in defense of American workers. The U.S. annually exports $2.2 trillion in goods and services, and these finance a like amount of imports. This raises U.S. gross domestic product by about $220 billion, because workers are about 10% more productive in export industries, such as software, than in import-competing industries, such as apparel. Unfortunately, U.S. imports exceed exports by nearly $600 billion, and workers released from making those products go into non-trade-competing industries, such as retailing, where productivity is at least 50% lower.