WASHINGTON, D.C. – In a U.S. Senate Banking Subcommittee on Economic Policy hearing today on Chinese currency practices and their effect on trade imbalances and American manufacturing, U.S. Senator Sherrod Brown (D-OH) said if China does not change its currency policy, Congress will act.
“Patience is waning as more U.S. businesses are undercut and more U.S. jobs are eliminated. The Chinese government follows its economic interests, and the United States must do the same,’ Brown said as he pressed the Obama administration to designate China as a currency manipulator. On April 3, the Treasury Department delayed its semi-annual report on foreign government exchange rates.
“By keeping the value of the RMB artificially low, China provides an incentive to foreign corporations to shift production there, because it reduces the price of investing in China and makes Chinese exports cheaper,” Brown said in his opening statement. “This continued undervaluation – which most economists agree is in the range of 25 to 40 percent – has caused serious harm to the U.S. economy and has cost American jobs.”
A recent Economic Policy Institute (EPI) report states that since China joined the WTO in 2001, 2.4 million jobs have been lost or displaced in the United States as a result of the U.S.-China trade deficit.
On March 16, Brown introduced the Currency Exchange Rate Oversight Reform Act of 2010 with Sens. Charles E. Schumer (D-NY) and Lindsey Graham (R-SC) and 11 other senators that would outline stiff new penalties on designated countries, including tariffs on the countries' exports and a ban on any companies from those countries receiving U.S. government contracts.
Testifying at today’s hearing were U.S. Sen. Lindsey Graham (R-SC); Dr. Jack Shilling, Executive Vice President and Chief Technical Officer, Allegheny Technologies and Chairman of the Specialty Steel Industry of North America; Mr. Clyde Prestowitz, President, Economic Strategy Institute; and Mr. Nicholas R. Lardy, Senior Fellow, Peterson Institute for International Economics, Mr. Daniel Ikenson, Associate Director, Cato Institute’s Center for Trade Policy Studies; and Mr. Charles Blum, Executive Director, Fair Currency.
Also testifying was Ohio native Mr. Mark Suwyn, C.E.O. of New Page, a paper manufacturer in Southwest Ohio. He described the effect unfair trade policies had on his company and the domestic paper industry.
“Chinese paper producers have been able to lower prices, increase exports, and gain market share in the United States, all because of large subsidies provided by the Chinese government and their willingness to dump their product in the U.S. market. And the biggest subsidy of all is the 40 percent undervaluation of the Chinese currency,” Suwyn testified.
A leading voice on fair trade, Brown was recently described as “Congress’ leading proponent of American manufacturing.” In March, Brown joined a bipartisan group of 14 senators in introducing new legislation to vigorously address China's chronic undervaluing of its currency that unfairly affects U.S. trade. The proposal outlines stiff new penalties on designated countries, including tariffs on the countries' exports and a ban on any companies from those countries receiving U.S. government contracts. In March, following the release of new trade deficit figures, Brown wrote to Treasury Secretary Geithner urging him to designate China as a currency manipulator.
Below is the full text of Sen. Brown’s statement:
We are holding this hearing in the hope our witnesses can shed light on the effects China’s exchange rate policy has on trade flows, and what remedies Congress must consider.
Analysts and news reports indicate we should anticipate China to begin gradually revaluing its currency, the RMB, in the coming weeks.
What we hope to learn is what a meaningful appreciation of the RMB would be, and what effects it will have on U.S. –China trade and U.S. employment.
And, we will consider remedies to address this imbalance that exists today and that we can expect to remain for some time in the future. While it’s true that the journey of a thousand miles begins with a single step, that’s an awfully slow way to reach your destination.
But that’s the path we are on today. When I came to Congress, the RMB was valued at about 5.5 to the dollar. Then, from 1995 to 2005 , it was valued at about 8.28 without change. In my mind, that’s one of two things: one heck of a coincidence, or currency manipulation.
From 2005 to the middle of 2008, we were heading in the right direction, however slowly. Beginning in 2005, the government of the People’s Republic of China managed a slight currency appreciation, which allowed for a few years of modest progress.
But in the summer of 2008, China abandoned this process, and once again fixed the value of the RMB against the dollar.
So our journey of a thousand miles has involved more steps backward than forward during my time in Congress.
By keeping the value of the RMB artificially low, China provides an incentive to foreign corporations to shift production there, because it reduces the price of investing in China and makes Chinese exports cheaper.
This continued undervaluation – which most economists agree is in the range of 25 to 40 percent – has caused serious harm to the U.S. economy and has cost American jobs.
Think about it. If one gas station is offering gas for $3.00 per gallon and another is selling it for $2.00, how long can the first one stay in business?
According to a recent Economic Policy Institute (EPI) report, since China joined the WTO in 2001, 2.4 million jobs have been lost or displaced in the United States as a result of the U.S.-China trade deficit.
Under the Omnibus Trade Act of 1988, the Treasury Department is required to formally identify countries that manipulate their currency for the purpose of gaining an unfair competitive trade advantage.
In recent years, Treasury has found that certain countries’ currencies were undervalued.
However, based on its interpretation of the law’s legal standard for a finding of “manipulation,” Treasury has refused – and continues to refuse – to cite such countries as currency manipulators.
Last month, Secretary Geithner announced the Department will delay the release of this statutorily-required report to Congress.
This Committee has oversight responsibilities of this issue. And under Article I, Section 8 of the United States Constitution it is Congress that is charged with the regulation of both foreign commerce and the value of our currency.
The Subcommittee invited a representative of the Treasury Department to testify today, but the Department declined due to its ongoing diplomacy, both bilaterally with the Chinese, and in multilateral settings like the G20.
I disagree with the Department’s decision. I care less about the exact timing of the report than I do about the Administration’s willingness to be open with Congress and the American people about what it is doing and why.
And while the cat’s got their tongue when it comes to testifying before Congress, I note that not one but three Treasury representatives were scheduled to speak with a group of bankers and analysts at a J.P.Morgan investor conference at the Madison Hotel tomorrow morning.
The American people have been patient as the Administration continues this strategy. But patience is waning as more U.S. businesses are undercut and more U.S. jobs are eliminated.
The Chinese government follows its economic interests, and the United States must do the same.
I know I can speak for Chairman Dodd in stating that the Committee looks forward to Secretary Geithner’s appearance before the Committee in the coming weeks. We also look forward to the publication of the exchange rate report.