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A Project of The Annenberg Public Policy Center

Romney Ad on China Mangles Facts

A Romney ad strains the facts when it suggests the Obama administration’s refusal to “stand up to China” and label it a currency manipulator has cost the U.S. 2 million jobs. The jobs figure is unrelated to currency manipulation. It is an International Trade Commission estimate of jobs that could be created if China enforced U.S. intellectual property rights.

Actually, intellectual property rights are a high priority of the Obama administration, and in 2010 it won what it called “significant intellectual property rights enforcement initiatives” from the Chinese.

Furthermore, the administration has muscled China on trade matters starting in 2009, when it sought import tariffs on 35 percent of imported tires from China. The Wall Street Journal called it “a big victory” when those tariffs were later upheld by the World Trade Organization.

Meanwhile, U.S. exports to China have increased 45 percent during Obama’s first three years in office.

Manipulating Facts

In its new ad, titled “Stand up to China,” the Romney campaign says: “Fewer Americans are working today than when President Obama took office. It doesn’t have to be this way. If Obama would stand up to China. China is stealing American ideas and technology — everything from computers to fighter jets. Seven times Obama could have taken action. Seven times he has said no. His policies cost us 2 million jobs.”

The “seven times” Obama “said no” refers to the Treasury Department’s semi-annual Report to Congress on International Economic and Exchange Rate Policies. Mitt Romney has made a campaign issue of the Obama administration’s repeated decision, most recently in May, not to list China as a currency manipulator in the Treasury report.

Romney says China undervalues its currency in order to keep Chinese products cheaper than U.S. products, resulting in the loss of U.S. manufacturing jobs. He has promised on his first day as president that he would direct Treasury to label China a currency manipulator and instruct the Commerce Department to impose countervailing duties on Chinese goods if China did not take immediate action.

Romney’s promise is quite controversial. The U.S. China Business Council, made up of 240 U.S. corporations that do business with China, has said it would do “more harm than good,” adding: “USCBC believes that Obama administration’s approach of employing multilateral and bilateral engagement with China is the most useful way to make progress on the exchange rate issue.” And during a Republican presidential debate last year, Jon Huntsman (a former U.S. ambassador to China in the Obama administration) attacked Romney’s proposal, saying it “would start a trade war,” hurting small businesses and small exporters.

Separate from the merits of Romney’s proposal, the fact is that Obama’s decision not to identify China as a currency manipulator has not cost the U.S. 2 million jobs. It also has nothing to do with fighter jet technology being stolen, or with China’s failure to protect “American ideas” through enforcement of intellectual property rights.

The jobs estimate comes from the International Trade Commission. An ITC report completed at the request of the Senate Finance Committee and issued in May 2011 estimated that a net 2.1 million full-time equivalent jobs could be created in the U.S. if the protection of U.S. intellectual property rights “in China improved substantially.” That estimate assumes a high U.S. unemployment rate, so the actual number of jobs would depend on when and how quickly China acts.

Not only does ITC’s job estimate have nothing to do with currency manipulation, but the report undercuts Romney’s argument that Obama is doing nothing to confront China. The report says that Congress and the administration have made intellectual property rights a high priority.

The ITC is an independent, quasi-judicial agency. By law, no more than half of the six commissioners can be of one party. Four of the six were originally nominated to the panel by then-President George W. Bush.

ITC, May 2011: The strengthening of IPR protection in China and the elimination of China’s indigenous innovation policies considered to be discriminatory have been identified as important priorities in the trade relationship by many U.S. government agencies, including the Committee; the U.S. Commerce Department (Commerce or USDOC); and the White House, through the U.S. Trade Representative (USTR). These issues were among the central themes of the December 2010 U.S.-China Joint Commission on Commerce and Trade (JCCT) meetings, one of the highest forums for U.S. and Chinese political leaders to address bilateral trade issues, as well as of the January 2011 U.S.-China summit.

At the December 2010 JCCT meetings referenced in the ITC report, China agreed to what the Obama administration called “a series of intellectual property rights commitments that will protect American jobs.”

A day before that agreement, the World Trade Organization backed the U.S. in a dispute with China over tire imports. The Wall Street Journal said the Obama administration invoked a “rarely used safeguard provision to protect against import surges” in what the paper described as “one of the biggest trade spats between the two countries in recent years.”

The Obama administration also has taken action in response to China “stealing” U.S. technology of “fighter jets” —  contrary again to the impression left by the ad that Obama has done nothing.

The Romney campaign cites a report in the April 21, 2009, Wall Street Journal about a security breach of the computer systems containing information on the Joint Strike Fighter project, a weapon program under development by Lockheed Martin. The article, which appeared three months into the Obama administration, quotes unnamed former U.S. officials saying the cyber attacks on the weapons program “appear to have originated in China” and date to “at least as far back as 2007” during the Bush administration.

(We note, too, that the Romney ad displays the design drawings of the Joint Strike Fighter to illustrate the cyber attack, but the Associated Press reported that “no classified information about the military program was compromised” in the cyber attack on the project.)

So what has the Obama administration done about cyber attacks on computers containing sensitive national security information?

The 2009 Journal article noted that “the Bush administration planned to spend about $17 billion over several years on a new online-security initiative and the Obama administration has indicated it could expand on that.” Within six months of taking office, the Obama administration took steps to create the U.S. Cyber Command to deal with computer security threats at the Defense Department.

Separately, the Department of Homeland Security operates a system called Einstein 2 to protect non-defense government computers and is developing Einstein 3, the next generation of computer security. The Einstein security program is part of the Comprehensive National Cybersecurity Initiative established under the Bush administration in January 2008.

The administration and Congress are also currently engaged in a dispute over imposing stricter computer security standards on private defense contractors. The administration supports the Cybersecurity Act of 2011, a bill sponsored by Sen. Joe Lieberman of Connecticut and cosponsored by Republican Sen. Susan Collins of Maine. A majority of senators voted to bring the bill up for a floor vote, but it fell eight votes short of the 60 needed to advance.

By now, you may be asking: What does cyber spying and intellectual property piracy have to do with Obama’s failure to label China a currency manipulator? Well, that’s the question we asked of the Romney campaign. We were told that labeling China a currency manipulator would send a clear signal to China that the U.S. is serious about unfair trade practices and that the U.S. would be “more likely to make progress across a range of issues.”

What’s clear to us, though, is that this Romney campaign ad mangles the facts and strains to blame the high U.S. unemployment rate on Obama’s policies toward China.

— Eugene Kiely