WASHINGTON, D.C. – U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Banking, Housing, and Urban Affairs Committee – today held a hearing to evaluate China’s financial risks to the U.S. economy, particularly the steel industry and its workers.

“If any industry knows the harm that China’s non-market economy and policies can pose to a U.S. industry and U.S. jobs it is the steel industry,” said Brown. “Our steel sector has experienced firsthand the consequences of China’s industrial policies and competing against China’s state-owned enterprises. There is a crisis among U.S. steel manufacturers – resulting in the layoffs of over 14,000 steel workers – and the crisis will only get worse as China attempts yet again to export its way out of a slow-down.”

China’s steel overcapacity has contributed to an influx of unfairly traded steel, leading to thousands of steel industry layoffs, including nearly 1,500 in Ohio alone. China has yet to follow through on promises to reduce its production. China’s non-market economy also hurts the steel industry. China routinely intervenes in its currency exchange rate, manipulating it to the detriment of U.S. workers. Brown invited Tom Gibson, President and CEO of the American Iron and Steel Institute (AISI), to testify at today’s hearing on behalf of U.S. steelworkers and companies.

Brown has worked to crack down on countries that unfairly import their products into the U.S. In April, Brown called on the Administration to bring a World Trade Organization (WTO) case against China in an effort to address steel overcapacity, which has hurt the domestic steel industry.

Brown’s legislation, the Leveling the Playing Field Act, introduced in March 2015 and signed into law in June 2015, has restored strength to antidumping (AD) and countervailing duty (CVD) statutes that allow businesses and workers in the United States to petition the Commerce Department and the ITC when foreign producers sell goods in the U.S. below market price or receive illegal subsidies. This legislation helped steel companies, including four in Ohio, win recent cases that Brown supported.

Brown’s opening statement as prepared for delivery at today’s hearing is available below.

 

 

Ranking Member Sherrod Brown
U.S. Senate Banking, Housing, and Urban Affairs Committee
Opening Statement as Prepared for Delivery
“Evaluating the Financial Risks of China”
July 14, 2016

 

Thank you Chairman Shelby for holding today’s hearing.

China’s economy by some measures is larger than the U.S. economy and is very influential in global markets. 

But China’s economic growth is slowing.  As a result China continues to make decisions to boost its economy, even when those decisions are not good for long-term stability, and even when they violate international trade rules. American businesses and workers have suffered as a result.

Implicit in this discussion is an acknowledgement that the promises made 15 years ago by China and supporters of China joining the World Trade Organization have gone unfulfilled. China has not transitioned to a market economy and has not lived up to the commitments it made when it joined the WTO. 

Instead of pursuing industrial policies that boost the Communist Party, China needs to make structural economic reforms that are good for domestic and global economic stability. 

For example, China needs to “rebalance” its economy.  Instead of adding more production capacity, which has triggered massive overcapacity problems in the global markets, the Chinese government needs to increase domestic consumption and move to a more service-based economy to allow for more sustainable growth.

China should also reduce state ownership and state control in its economy. China has used state-owned enterprises to implement its industrial policies, but the consequences are sectors defined by overcapacity, inefficiencies, corruption, and excess. 

A presumption of government support has allowed unprofitable and poorly managed Chinese companies to issue debt cheaply and add industrial capacity. Servicing this debt is getting harder as profits decline and defaults rise. According to the International Monetary Fund, total loans potentially at risk on Chinese commercial banks’ balance sheets at the end of 2015 were estimated to be $1.3 trillion or 15.5% of the total.

These loans are not just a risk for the Chinese government. They present a risk to global financial stability as well. 

We need to watch for an uptick in acquisitions of U.S. firms by Chinese state-owned enterprises that could pose national security concerns for the U.S.

And we cannot ignore the fact that China has regularly intervened in its currency exchange rate to boost exports to the detriment of American manufacturers. While the yuan has appreciated in value recently, we know we are just one decision away from a currency intervention that will hurt our business and workers. 

It is very difficult for American companies to compete with a non-market economy that undervalues its currency when it wants, uses state ownership to support companies that would otherwise fail, contributes to global overcapacity in major sectors, and follows the rules only when it suits its interests.

It is also hard to compete against a country with persistent human rights abuses, discrimination against religious minorities, weak labor and environmental standards, state-sponsored cyber- espionage, and intellectual property theft, to name a few.

If any industry knows the harm that China’s non-market economy and policies can pose to a U.S. industry and U.S. jobs it is the steel industry. Our steel sector has experienced firsthand the consequences of China’s industrial policies and competing against China’s state-owned enterprises. 

There is a crisis among U.S. steel manufacturers – resulting in the layoffs of over 14,000 steel workers – and the crisis will only get worse as China attempts yet again to export its way out of a slow-down. 

This is why I invited Tom Gibson, President and CEO of the American Iron and Steel Institute, to testify today. U.S. steel workers understand the impact and risks of China’s policies.

And that’s why today’s hearing is so important. American companies and workers need a level playing field, not xenophobia and cynical China-bashing.  Finding real solutions to push China to change its economic policies is key.

 

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