Romney has renewed his sharp line of attack on Obama’s China policy. Doubts grow on Mitt's China threats

Mitt Romney is hoping his tough talk on China policy will win him votes — but few of his big business donors or fellow Republicans support what he’s saying or believe he’d follow through if elected.

And if he did, many analysts say, he’d likely spark a disastrous and counter-productive trade war that would hurt both American consumers and the workers he says he’s trying to protect. But Romney advisers say voters shouldn’t expect him to back off the tough talk if he gets elected, and other experts say fears of a “trade war” are overblown since the Chinese need the American market just as much consumers like cheap Chinese imports.


( Also on POLITICO: China: Romney's rich because of us)

The Republican nominee has renewed his sharp line of attack on President Barack Obama’s China policy, arguing in a new ad, on the stump and in a fundraising pitch to supporters that he would take a much brawnier approach to the abusive Chinese trade practices. He’s repeatedly said one of his first acts as president would be to formally label China a currency manipulator and slap punitive tariffs on Chinese exports to the U.S.

“I want to make sure that if a nation cheats like China has cheated, we call them on the carpet and don’t let it continue,” Romney said this week in Virginia, returning to what’s been a recurring theme of his campaign.

That may play well in the Rust Belt, where automobile and other manufacturers are especially vulnerable to China’s trade policies and there’s wariness of Obama’s less confrontational approach.

But there’s fear that Romney’s threat — if actually carried out — could damage the U.S. economy. The Chinese could retaliate by slashing purchases of U.S. debt, driving up our interest rates. Any new tariffs on Chinese exports would also increase prices for U.S. consumers, who have grown accustomed to cheap Chinese goods filling U.S. store shelves. Branding China a currency manipulator also could stop cooperation in other areas of dispute and force all disagreements to go before the WTO, which could take years to reach a ruling of uncertain consequences.

“What would happen is we would badly damage our relations with the Chinese while also raising the question of consistency regarding other nations that also manage their currency,” said Tony Fratto, a former Bush administration economic adviser and spokesman.

An actual Romney policy, many corporate executives believe, would have the same kind of focus on bringing cases before the World Trade Organization and negotiating behind closed doors — the same approach of Obama and George W. Bush.

“On his first day on the job, Romney is not going to put himself on the immediate defensive with the world’s second largest economy,” said one top financial industry executive who strongly supports Romney. The executive, like many others interviewed for this story, asked not to be identified by name so as not to jeopardize relations with a possible future president.

“It is unclear what China’s initial reaction would be [to Romney’s proposed actions]. But none of the scenarios are positive,” the executive added. “Will they ban some of our exports? Maybe. Will there be crippling tariffs? Maybe. It would set into motion a very unpredictable and possibly very damaging series of events.”

( Also on POLITICO: Romney's new ad whacks China)

Daniel H. Rosen, a partner at the Rhodium Group and an expert on the Chinese economy, said there would be a wide-ranging effect to the policies the Republican nominee is championing.

“If a Romney presidency starts with aggressive new unilateral tariffs for China, then American firms from General Motors to General Electric and Microsoft should all plan ahead for retaliatory treatment,” Rosen explained.

The banking lobby is especially sensitive to angering China. It has been pushing hard to expand the reach of U.S. financial services firms into a giant Chinese market that’s expected to produce enormous revenues over the coming decades as China’s businesses mature and its middle class grows.

It’s not just bankers.

“There’s a way to deal with this problem and a way not to deal with it,” House Speaker John Boehner said at a press conference this summer. “Congress passing a law outlining stringent requirements for dealing with the Chinese and the value of the currency, I think, is inappropriate.”

Earlier this year, U.S. Chamber of Commerce President Thomas Donohue also rebuked Romney’s approach and said of the recent in rise in China’s currency: “I think maybe reality has now gotten Romney off the hook on what he said he would do the first day he came into office.”

Even vice presidential nominee Rep. Paul Ryan, has taken a less aggressive approach to China in the past. Ryan voted against bills in the House to place duties and tariffs on currency manipulators.

But Ryan has now joined in with Romney’s more biting approach, saying recently that China treats Obama “like a doormat” and calling for much bolder action. The Romney campaign says Ryan voted against the bills in the House because he believes the tariffs issue should be handled by the executive branch.

So far, the Romney camp has shown no signs of backing off its hard stance, either publicly or in private meetings with donors. And not everyone in the business community thinks Romney’s approach is reckless. “A trade war is the unicorn of international economics,” said Scott N. Paul, executive director of the Alliance for American Manufacturing. “China’s a rational actor. China will modify its behavior if it believes market access to the United States could be at risk.”

In an interview with POLITICO, a top Romney adviser said people who think Romney will soften his position are dead wrong.

“People should wait and see what he does after the inauguration,” said the adviser, who was not authorized by the campaign to speak on the record. “You have to look at how much we buy from China and how much they buy from us. Those numbers are a very serious deterrent to the Chinese pursuing retribution against us. And from a strategic standpoint, if we are always unwilling to act because we think the Chinese might be willing to act, then we are always going to be stuck at this same point.”

If Romney were to direct the Treasury Department to label China a currency manipulator, his action technically would only require that Treasury enter into direct talks with the Chinese government, something that is already happening informally. But how the Chinese react to a perceived public slap is another question.

“And what good would our chest-thumping accomplish? The answer is not very much good at all. Some critics of China say it would bring jobs back to the United States, but it just won’t,” Fratto said. He added that if China’s currency rose, it would benefit other Southeast Asian nations with cheap currencies rather than helping the U.S.

The Obama campaign accuses Romney of “hypocrisy” and coming late to the issue of cracking down on China, slamming Romney in a new battleground state ad for “relocating jobs” to China while at Bain Capital.

“Mitt Romney’s Johnny-come-lately rhetoric on China stands in stark contrast to his record — investing in companies that were outsourcing pioneers, making $1.5 million off of personal investments in China that he unloaded when he decided to run for president, and criticizing the president for enforcing trade laws against China, calling it ‘bad for the nation and our workers,’” Obama campaign spokesman Ben LaBolt said.

Administration officials reject the Romney campaign’s criticism that Obama has not done enough to combat unfair Chinese trading practices.

Treasury Secretary Timothy Geithner has mocked Romney’s pledge to label China a currency manipulator. “Like you can solve problems in the world, a very complicated world we live in, by calling people names?” he said in a recent CNBC interview. Geithner also noted that the Chinese currency has appreciated by 13 percent over the past several years while U.S. exports to China have grown significantly.

Obama, for his part, used a recent trip to Ohio to tout a newly filed WTO trade complaint against China for imposing unfair tariffs on American cars, mainly those made by GM and Chrysler. Obama announced the U.S. was filing the claim at an event not far from a GM plant that makes Jeep Wranglers.

The president is counting on support for the auto bailout and actions such as that WTO case to help keep the Rust Belt in his column despite a wobbly national economy that has jeopardized his reelection.

Romney hopes his tougher words will make Obama look weak. But the question remains whether Romney’s tough talk is just that: talk.

“It’s kind of a head scratcher,” said the senior financial services executive who supports Romney but questions his China policy. “Is this just rhetoric or is this really the view of the candidate?”

Other executives see Romney’s tough stance as a head fake to the Chinese, an opening gambit that will give him leverage once he takes office. This view holds that Romney can score an early win with the Chinese by wresting certain concessions in return for not labeling the country a currency manipulator or taking other actions right away.

But this interpretation also suggests that Romney would break a campaign pledge almost as soon as he sits down in the Oval Office, a notion many reject.

“I think Governor Romney should be taken at his word,” Rosen said.

A Washington lobbyist for a Wall Street firm put it more simply.

“The China policy is Romney’s Sister Souljah moment,” the lobbyist said, referring to the moment in the 1992 campaign when Bill Clinton rebuked the inflammatory statements and lyrics of a popular hip-hop artist to cement his New Democrat bona fides. “This is a way for Romney to demonstrate that not every policy he has is the exact same policy that Fortune 100 chief executives want him to have.”