Clinton and Obama officially scare the crap out of me

About a month ago I was talking with a big-name economist who was advising a couple of presidential campaigns. I've differed with this person on a few policy issues, but I'd be very comfortable with this person in a position of authority. I asked him which candidates on the Democratic side would be able to pursue a responsible trade policy, and he replied, without hesitation, "Clinton and Obama." After reading Eoin Callan's Financial Times story, I'm afraid I can't believe that anymore: Hillary Clinton and Barack Obama, the frontrunners for the Democratic presidential nomination, have agreed to co-sponsor legislation that would levy punitive duties on Chinese goods to cajole Beijing into revaluing its currency, according to aides.... Brian Pomper, a former Democratic adviser, said China was becoming a proxy for US political anxiety about globalisation and that sponsorship of the bill was the most combative position yet taken towards Beijing by the two candidates. Sandra Polaski, a trade analyst at the Carnegie Endowment, said US politicians were making China a scapegoat in the face of widespread economic insecurity among voters. ?Opinion polls consistently show the American public has a balanced view of China. It is campaigning politicians who are turning the heat on Beijing,? she said.Brad DeLong makes the point better than I: Of course, then the candidates will be attacking US consumers (who will pay higher prices for imports), workers in the construction industry, US borrowers (who will then pay higher interest rates to domestic and foreign creditors), and US homeowners (who will see the higher interest rates push down housing prices and reduce their equity). The net short-run effect is surely a minus--it's not as though we desperately need to swap construction jobs for manufacturing jobs right now, and we surely don't need a more-rapid decline in housing prices right now. In the long run of three to five years, yes: The renminbi needs to become worth a lot more (primarily for China's sake). Pressure on China to adopt better policies is helpful (provided we don't shoot ourselves in the foot). But this strikes me as a classic threat to shoot ourselves in the foot: it is not a good policy move on either Obama's or Rodham Clinton's part. This prompts Matt Yglesias to ask the following: Now where I tend to lose the plot is this. If mainstream economists like Brad think it's a bad idea to use threats of tariffs to push China into changing its exchange-rate policies, how come the economics mainstream seems to have so few complaints about the fact that it's completely normal for US trade negotiators to use exactly this sort of leverage to try to get other countries to change the intellectual properties policies or to privatize their water systems or what have you? Why is the threat to shoot ourselves in the foot okay when made on behalf of pharmaceutical companies and movie studios, but not when made on behalf of import-competing manufacturers? Often when I see this argument made, I feel like the point is -- aha! hypocrites! you should support our China bill after all! -- but I really do think Brad's right, this is a bad bill. But by the same token, the people who complain about this sort of thing ought to complain about the other sort of thing as well.To answer Matt's question to the best of my ability, you have to realize the following: 1) All trade sanctions, when imposed, are welfare-reducing. The hope in deploying them is that they will be sufficiently painful to the targeted country that its government will acquiesce in a prompt manner -- i.e., before they really bite. 2) The kind of sanctions that Matt discusses -- "leverage to try to get other countries to change the intellectual properties policies or to privatize their water systems or what have you" -- have actually worked pretty well. Even better, they've worked at the threat stage, so the costs of sanctions imposition have not been incurred. They've worked remarkably well when the WTO authorizes them, which they do if a dispute resolution panel decides that a country is imposing a protectionist measure. So Clinton and Obama aren't completely crazy to think this tactic could be applied towards China. 3) On the whole, this tactic has worked because the U.S. has a really big market, and the countries we've targeted for sanctions have been much smaler, highly dependent upon the U.S. market, and don't have more than a trillion dollars in U.S. debt lying around. 4) China is a pretty big economy, and they do have that trillion dollars. If the regime is facing any domestic pressure, it's a nationilist impulse to say "f#@k you" to the United States. Furthermore, we're asking them to do something far more significant than enforce intellectual property rights in some sectors. We're asking them to f$%k with what's been their primary engine for growth for the past two years. DeLong is correct that this engine is unsustainable in the long run, but -- and this is the key point -- they're not going to acquiesce to this threat anytime soon. If anything, nationalist sentiment will make it less likely that Beijing would acquiesce after sanctions were imposed than at the present moment. Clinton and Obama are willing to screw over the American consumer for a self-defeating measure. Both of them should know better. UPDATE: Dani Rodrik blogs an intriguing proposal on how to remedy China's undervalued currency. That is to say, it would be intriguing if the policy could be executed in a vacuum with zero political externalities. I don't think it can actually be implemented. ANOTHER UPDATE: Several commentators have suggested that a) Clinton and Obama are merely posturing; and b) Republicans are just as bad. My response to (a) is that it stops being posturing when you're co-sponsoring legislation that has a decent chance of passing. My response to (b) is a free round of tu quoque for everyone.