In Monday's foreign policy debate, Mitt Romney reiterated his promise to label China currency manipulator on "day one" of his presidency. "I've watched year in and year out as companies have shut down and people have lost their jobs because China has not played by the same rules," he said while accusing the country of currency manipulation.
Currency manipulation is a process whereby a government artificially inflates or depresses the value of its currency relative to other denominations. In China's case, currency manipulation takes the form of devaluing the yuan by buying up U.S. government debt and raising demand for the dollar relative to its own currency. That keeps the yuan at a lower value relative to the dollar, meaning that Chinese manufacturing costs (and, by extension, goods) stay cheaper than their American counterparts. U.S. manufacturers, unions and politicians charge that this gives China an unfair competitive advantage.
However, economists such as Nobel Prize-winner Paul Krugman say that Chinese currency manipulation "is an issue whose time has passed." The yuan's exchange rate to the American dollar has climbed significantly upwards over the past five years, and the non-partisan Peterson Institute estimates that the Chinese currency is far closer to "equilibrium" with the dollar than critics allege.
Nonetheless, Romney's fixation on Chinese currency manipulation has long been a fixture of his international relations platform. He has repeatedly vowed to label China currency manipulator on "day one" of his presidency, so that he may levy tarriffs against Chinese goods. Some observers--including Time's Joe Klein and Romney's own surrogate, Senator Marco Rubio--believe that retaliating against China for alleged currency manipulation could spark a "trade war" in which both China and the United States institute increasingly harsh tarriffs against one another, to the detriment of both countries' economies. During the debate, Romney said that a trade war was already occurring.
Notably, Romney hasn't always been a supporter of tarriffs against China, which he once derided as "protectionist" measures. In his 2010 book No Apology, Romney criticized Obama's decision to impose a tarriff on Chinese tires because, "Protectionism stifles productivity." The Republican candidate's revised stance on "protectionism" is likely a bid for voters' affections in the Midwestern manufacturing hub--and crucial swing state--of Ohio.