The U.S. economy could slide into a recession if President Barack Obama is re-elected and fails to toughen his stance against China and its foreign-exchange policies, said Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland and former chief economist at the U.S. International Trade Commission.
China keeps its currency, the yuan, artificially weak to give it an edge in the global trade arena, which crimps growth in the United States, many politicians and business leaders charge.
Prior to the recession, Americans could drum up revenue from sources like home equity loans to continue to buy cheap goods made in China and keep the economy moving.
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Today, however, that’s no longer the case, and the next administration had better do what it can to pressure China to strengthen its currency to keep trade relations beneficial to the U.S. economy.
“Until 2008, Americans avoided recession by consuming more than they produced — homeowners borrowed ever large amounts to finance a spending binge. Led by China, foreign investors provided the funds by buying U.S. securities, and Wall Street banks recycled this money by underwriting ‘creative mortgage products,’” Morici wrote on his blog.
“When the Ponzi scheme collapsed, Washington bailed out the banks, and the Obama administration engineered a weak recovery by running up federal spending and deficits.”
Failure to toughen policy could send the United States sliding into a recession anew, considering the size of the country’s deficits and weak growth rates.
Regulations on the financial system, such as those outlined under the Dodd-Frank reform law, are hampering growth as well and aren’t leading to increased lending to smaller businesses.
“Only currency adjustments between the United States and China, and replacing Dodd-Frank with genuine bank reforms can avoid another U.S. recession — one that throws the already weak global economy into the great abyss,” Morici wrote.
“Four years with President Obama speaks loudly that he doesn’t have the stomach to effect changes with China or on Wall Street. At least [GOP presidential nominee Mitt] Romney promises to tackle the China problem and new Wall Street reforms,” he added.
“The choice is between the failed and the untried.”
Romney has said he would toughen U.S. trade policy with Beijing by declaring China as a currency manipulator if elected, meaning Washington could slap duties on Chinese imports if Beijing doesn’t strengthen the yuan.
“One of the ways they don’t play by the rules is artificially holding down the value of their currency,” Romney said recently, according to CNNMoney.
“China has been a currency manipulator for years and years and years.”
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