Google and China: What Obama can learn

For four years, Google has caved to Beijing’s demands to self-censor search results on its search engine within China. Now it has drawn a line in the sand about truth and transparency on the Internet. It will move its Chinese operations to Hong Kong in hopes of operating freely.

Given Google’s prominence on the Web, the move may force China’s rulers to rethink their stranglehold over information reaching 1.3 billion Chinese. But more important, Google’s decision to stand up for an ideal may serve as a lesson for other companies operating in China – and perhaps even for President Obama.

Mr. Obama has hesitated in challenging China’s curbs on basic freedoms. Most of all, he has avoided official criticism of one of China’s most damaging restraints: the manipulation of its currency on the open market.

There is little dispute that China pegs the value of its yuan by as much as 25-40 percent below that of other currencies, a move that gives its exports an unfair price advantage and destroys jobs in other countries. Its leaders want the revenue from this export-led growth model in order to maintain power over its restless and largely peasant population.

The International Monetary Fund bars countries from manipulating their currency in order to gain an advantage. But Beijing has reportedly pressured the IMF not to say that China is a violator.

In coming days, Obama has an opportunity to follow Google’s lead and speak truth to Beijing. On April 15, the US Treasury will be required by law to issue a report naming countries deemed to be “currency manipulators.” More than 130 members of Congress have asked the Treasury to make such a finding against China. And a new bill backed by 14 senators calls on the president to take action if China refuses to end its currency controls.

The deeper issue for Obama is how much the United States should stand up for a model of free markets against China’s model of mercantilism, or controlled markets and economic nationalism. As China’s economy has grown at 8-10 percent a year, many countries are wondering if the Chinese model is the way to go.

Over the past two centuries, the West has steadily abandoned its own past practice of mercantilism. Each wave of trade protectionism only revealed the economic harm that such restraint on commercial freedom inevitably brings. The free flow of goods, capital, and ideas, while often disruptive in the short run, has brought progress to individuals and elevated societies over time.

In the 1980s, when Japan’s export machine and the manipulation of its currency threatened foreign markets, the US stood up to Tokyo’s mercantile ways, forcing it to devalue the yen. Since 1979, when China began its long march to be an export giant, it has followed that earlier Japanese model of government-managed competition and a subsidized industrial policy.

The impact of China’s exports on global markets, along with a strategic grab of oil and mineral resources, now surpasses that of Japan. Other nations are looking to the US for leadership on how to challenge Beijing.

The US must make sure its free-market model will prevail. With only a few words in the coming Treasury report, the Obama administration could signal that the course of history will be toward more – not less – economic freedom.

Such a designation need not result in the US taking retaliatory action against Chinese imports. Rather, it could help Obama in rallying other countries to speak in one loud voice in hopes that China would become a responsible stakeholder in an open economic order.

Google has spoken. Will Obama?