Monday, the Republican Convention opens in Tampa, Florida. Election season is ramping up for its final, hot rhetoric-filled two-month dash toward November 6. Now, as always, MarketMinder remains politically agnostic. Frankly, each party has historically given the country its fair share of nonsensical economic policy—as has bipartisan cooperation. We see no reason to believe one party’s superior to the other from the stock market’s point of view, and data bear that out over the long run. This year, it seems the economy is poised to be an important factor in determining the election’s outcome. Or rather, how well politicians sell their perception of the economy seems to be an important factor. Yet these perceptions are often flat wrong—here are a few examples where neither candidate is really correct. Yet they’re frequently discussed “issues,” nonetheless.
Who will be tougher on China?
Mssrs. Romney and Obama agree on this point: Chinese imports are artificially cheap due to currency policy and, hence, an economic scourge. In their view, restricting them can only help America’s economy—to them, these cheap imports harm American corporations’ competitiveness.
Already, President Obama has hiked tariffs on Chinese tires and just recently slapped anti-dumping duties on solar panels and a few other very minor imports. Governor Romney has said on the stump (and perhaps this is merely campaign rhetoric) he plans to be “tougher” on China—implying more and broader protectionist policy, should he win the election.
Now, there’s no doubt China manipulates its currency, which makes its exports cheaper than they otherwise would be. But before presuming this justifies slapping much higher taxes on Chinese goods entering America (tariffs are taxes), consider the entire impact. Roughly half of American imports are intermediate goods—unfinished items or machinery used by some businesses in production of goods later labeled “Made in the US of A.” To the extent these components of US output are artificially cheap, that would actually imply US firms are spending less on these inputs—boosting competitiveness. Higher tariffs, in effect, would hit these US firms.
As for finished goods for sale, low prices for Chinese goods (whether artificial or not) benefit American consumers who might shop on price. And they compete with goods produced elsewhere, likely helping lower prices overall. If tariffs were placed or increased on Chinese goods, it’s likely those costs get passed along to consumers. Therefore, taxing finished Chinese imports amounts to a tax on cost-conscious American consumers. In that way, President Obama and Governor Romney have said they’ll enact a regressive consumption tax in the name of punishing China.
Who’s the better “Job Creator”?
The actual answer is, resoundingly, the private sector, which has already created 3.2 million jobs since the recession’s end. At best, government policy can clear the way for quicker growth and, hence, increased hiring.
Business conditions on the ground are a far bigger input to private-sector hiring outcomes, and most executives are very cautious about hiring for a long time after recession. Essentially, they wait to be forced to hire when capacity strains their ability to meet demand. Thus, hiring lags economic growth by … a … lot. With the private sector healthy today, it’s likely hiring follows—whether Obama or Romney win.
Yet arguments still abound that unemployment’s “too high.” While we agree it’s high, and that’s obviously difficult for those impacted, the statement leads to a question: Too high for what? Growth begets jobs, not the other way around.
Who can better resurrect American manufacturing?
Both parties seemingly agree American manufacturing is in dire straits. Joe Biden’s even said so! And Paul Ryan! The entire ticket on both sides thinks that, despite the fact manufacturing output has risen over the course of the last few decades, there’s some kind of malaise afflicting the industry. In fact, they largely ignore the fact manufacturing’s been at the forefront of the current economic expansion.
The issue is at the same time output’s risen, manufacturing employment’s been falling. Politicians have their theories: Blame China or that this drives increased unemployment, harming economic conditions. (See above.) Yet the truth is, politicians in many countries could stump on manufacturing job losses in recent decades—even China—because the phenomenon is fully global. Job losses in manufacturing, painful as they are, are often a function of productivity gains and technological advance.
In our view, elections and political rhetoric are often—if not normally—far removed from economic reality. Perhaps it’s best to remember how different economics and politics are. The former is often said to be a study of humanity’s struggle against scarcity. The latter, in democracies, is more like the study of how to win a popularity contest.