JEFFREY BROWN: Two views now. Kenneth Lieberthal was senior director for Asia on the National Security Council staff in the Clinton administration. He's now a senior fellow at the Brookings Institution focusing on China.
And Gordon Chang wrote "The Coming Collapse of China." He was a lawyer there and in Hong Kong for 20 years and now contributes to Forbes.com.
Gordon Chang, let's just jump right into one of these issues. Mitt Romney says he will brand China a currency manipulator on day one. Now, what impact would that have? What does that mean to be a manipulator, and is it a good idea to brand them one?
GORDON CHANG, contributer to Forbes.com: Well, it certainly is a good idea to do so, because U.S. law requires the Treasury to brand a country a currency manipulator if in fact it manipulates its currency to gain a trade advantage.
Every business day, China's central bank intervenes in the Chinese market to make sure the Renminbi fits within a certain target.
And in September 2010, in New York City, Premier Wen Jiabao, China's economic czar, said that China keeps its currency low in order to give a trade advantage to its manufacturers.
So this is -- or at least it should be an open-and-shut case that China is a currency manipulator. And we should brand it as one.
JEFFREY BROWN: Ken Lieberthal, same question to you. And you heard the president say the currency has appreciated.
KENNETH LIEBERTHAL, Brookings Institution: I think it is a serious problem to brand them a currency manipulator.
First of all, a lot of countries around the world intervene to affect the value of their currency. Japan has many times over the years and so have many others. We haven't branded any of them a currency manipulator ever.
Secondly, the Chinese currency now is very close to a market clearing price would be. You see that reflected in China's current account balance.
The bottom line is, the current account balance is now well within the standards that we, ourselves, have advocated, saying that if it is within those standards, it really is not a big problem.
The Obama administration has pressured China from the start on currency values. They are now close to a market clearing rate. But the big issue is twofold. One, currency value is not, by any means, the biggest issue in U.S./China economic and trade relations. So it diverts attention from the big issues.
And, secondly, to brand them a manipulator would be to single them out in a way that would start off the next administration on a very bad foot and risk a trade war.
JEFFREY BROWN: Well, let me -- Gordon Chang, when it comes to getting tough, talking tough, getting tough, whether it is currency or on other trade issues, what is the best approach? What has been most effective?
You heard the president talk last night about a tariff on tires. China pushed back on that at that time. And then there is an argument that prices for U.S. consumers goes up when we do that.
What is the best, most effective way to be tough?
GORDON CHANG: Well, I think the best thing we can do, or at least the first thing we should do is enforce our own law, because if we don't do that, it sends a signal to China.
And, yes, of course, I agree with Ken. There are a lot of more important things that we need to talk to China about in terms of trade and investment and commerce. But if we're not willing to enforce our own law, the Chinese will become much more intransigent on those other issues.
And also I think we need to point out that although China's current account surplus has come down, it doesn't necessarily mean China's that currency has reached an equilibrium.
Nobody really knows where China's currency should be.
And just because there has been some slight alteration of the Renminbi really doesn't mean that the currency trades freely, because it doesn't. China can solve this very quickly by just allowing its currency to float. And then we wouldn't have to talk about this. So we need to start somewhere, and currency is one place to do so.
JEFFREY BROWN: So, Ken Lieberthal, where do we start? You heard them both talking tough last night. Right? So, what is the right, what is the best approach to do without, as you said on the currency manipulation question, sort of endangering the relationship?
KENNETH LIEBERTHAL: Well, first of all, you have to keep in mind our relationship with China is extraordinarily wide-ranging and extraordinarily important across a whole set of issues. This includes Iran nuclear weapons, North Korean nuclear weapons, territorial issues in East Asia.
JEFFREY BROWN: Lots of things that weren't talked about last night.
KENNETH LIEBERTHAL: Exactly.
But a president doesn't have the option of just acting on one issue, like currency, and neglecting what that does to the capacity to get China's cooperation with the next U.N. resolution on Iran sanctions, for example.
I think this president, on balance, has done a very solid job in terms of engaging the Chinese, privately being very tough with them. I know, on economic and trade issues, he is livid about a lot of the things China does. So, he has been very tough privately. But he has tried to keep them on board for other things that are also extremely important to the American people.
So this is a balance, and it's a process. There is no on-off switch.
JEFFREY BROWN: Gordon Chang, what about that investment exchange we heard? Help parse that for people, because the president, on the one hand, is -- seems to be accusing Mitt Romney of hypocrisy, I guess, about his investments as a member of Bain.
And then Romney turns back to the president and says, well, have you looked at your pension? Where are you investing?
GORDON CHANG: Well, I think that there are certainly different incentives for a person who is a chief executive of an investment company, and the incentives that applies to the leader of the free world.
So, yes, of course Mitt Romney, when he was chairman of Bain, did certain things that are now somewhat embarrassing to him in this presidential campaign, but I don't think that they really speak to how he would governor as president.
I think the next president, whether it is the governor or it is President Obama, is going to be acting under certain incentives, and certainly they're going to be quite different.
And, you know, the Chinese, despite all of the pressure that President Obama has put on them in the last four years, they have gotten worse on a range of issues, both geopolitical and trade, in the last two years.
China is going in all the wrong directions. So we do need a new approach, and we need to talk to the Chinese about three proliferation of nuclear weapons technology to Iran, just as we need to talk to them about currency manipulation.
JEFFREY BROWN: Ken Lieberthal, the larger question here of course is sort of why is China so much a focus at a moment like this in a campaign?
And is it a healthy exposition of the relationship or is it, as I saw one characterization today, a simplistic rhetoric that doesn't help for this very intertwined relationship we have?
KENNETH LIEBERTHAL: There is a long political tradition in the United States, dating back to our formal establishment of diplomatic relations with China at the end of the 1970s, that the challenger to an incumbent for the presidency almost always raises the China issue, says the incumbent has been too soft on China, and when he comes in, he will show them there is a new sheriff in town and they had better shape up, or they're going to be in real trouble.
JEFFREY BROWN: And then what happens after he comes into office?
KENNETH LIEBERTHAL: If he acts on his rhetoric, you get off to a rocky start. And then, over a period of time -- for President Clinton, it took three years, about, for President Reagan, a little shorter than that.
But over a period of time, they realize that their incumbent's policies -- their predecessor's policies were not so bad after all. You find them inch back to where they take them over, and then they build on them.
And the reason for that is, this relationship affects too many U.S. interests to allow rhetoric and kind of political one-up-manship to guide what you end up doing.
JEFFREY BROWN: All right, to be continued.
Ken Lieberthal and Gordon Chang, thank you very much.
KENNETH LIEBERTHAL: Thank you.
GORDON CHANG: Thank you.