Not a good idea

Governor Romney will no doubt repeat tonight that he will label China a currency manipulator on his first day in office.  This is what he won’t say:

1.  The Chinese have already revalued their currency a good bit (yuan/dollar), much of it during the Obama administration:

2.  The designation of currency manipulator is one provided for in U.S. law, not in international agreements.  Labelling China one would only require that the U.S. government negotiate with Beijing about their sin, something it has been doing for years (with the results portrayed above).  There is no other legal consequence in domestic legislation.  Washington could file a complaint with the International Monetary Fund or the World Trade Organization, but the consequences of doing that are unclear.  Neither organization has tried in the past to provide a remedy for currency manipulation.

3.  The Brazilians have been accusing the U.S. of manipulating its currency downwards (through the Fed’s “quantitative easing,” which injects dollars into the world economy), in order to compete more effectively.  Any success we have in pursuing a remedy against China will pave the way for a Brazilian complaint against the U.S.

4.  The most likely immediate Chinese reaction would be to halt the appreciation of the renminbi in preparation for a difficult negotiation with Washington.  This would certainly harm U.S. exports.  The Chinese could also retaliate in other ways:  not buying U.S. bonds or blocking U.S. investment.

Bottom line:  we have a lot more to lose than gain from a rhetorically stirring but ineffectual declaration that China is a currency manipulator.  Maybe that’s why the Bush and Obama administrations have both passed on the option Romney is pushing?