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(Washington D.C.)- Ways and Means Committee Chairman Sander M. Levin (D-MI) issued the following opening statement at today’s full committee hearing on China’s exchange rate policies:
“It is with a sense of urgency that the Committee is holding this hearing in the hope that with the help of our witnesses, we can shed light on the problems associated with China’s foreign exchange rate policy and consider possible solutions.
“What seems undisputed on this much disputed issue is that China has a persistent economic strategy, a policy, key to which is the pegging of its currency to the dollar at an undervalued rate.
“Since the mid 1990s, China has clearly pursued an export-led growth strategy focused on addressing its needs – namely, creating jobs and accumulating vast foreign reserves.
“Central to this export-led growth strategy is China’s policy of keeping its currency substantially undervalued. That policy keeps China’s exports cheap in the U.S. market, and makes imports into China substantially more expensive.
“China has combined its cheap currency policy with other policies including, most notably, government directed investments in its manufacturing sector, which in turn creates pressure to keep its currency artificially low in order to get rid of excess production by exporting.
“Chinese leaders have argued that these policies are necessary for China’s development for its massive needs to create jobs – although in recent years, more and more economists are questioning that proposition.
“While China has had a clear economic policy, a clear strategy, the U.S. on the other hand has not.
“Why not?
“One reason is that like so many other trade issues, it gets caught up in the polarization that grips trade issues – “free trade” vs. “protectionism” — a grip that I have believed harmful and reject. An illustration of the futility of the polarization is China’s argument that any action by the U.S. against China’s policies of control would be “protectionism” or would lead to a “trade war.”
“The easy polarization has helped handicap agreement on whether there is a problem.
“Increasingly, economist of various bents and other observers reject this.
“As Martin Wolf, the chief economics commentator for the Financial Times, has stated, “[T]he policy of keeping the exchange rate down is equivalent to an export subsidy and tariff, at a uniform rate.”
“Last week, the New York Times Editorial Board, another somewhat conservative and cautious commentator on these economic issues, wrote that “China’s decision to base its economic growth on exporting deliberately undervalued goods is threatening economies around the world. It is fueling huge trade deficits in the United States and Europe. Even worse, it is crowding out exports from other developing countries, threatening their hopes of recovery.”
“And these comments are echoed in our trade deficit with China, which for the past three years has been over $220 billion annually, and is a central driver in our overall trade deficit.
“Some deny that it has serious consequences for America’s working families. But the alarm grows that it does- Paul Krugman estimates that China’s exchange rate reduces U.S. employment by 1.4 or 1.5 million jobs – at a time the U.S. faces a crisis of unemployment.
“China’s currency policy and export-led growth policy are bad for the rest of the world as well, as a November 2009 Financial Times editorial concluded.
“While some disagree with the impact of China’s policies, and others view the issue through a lens that says “hands off” is the answer to market disequilibrium, that it is best to let things resolve themselves, I think the status quo is not sustainable.
“The U.S. - China relationship is a vital one for both countries. We are increasingly interdependent and there are vital foreign policy considerations in addition to economic ones, but the China currency issue itself will not go away.
“There is no easy answer to the problem, as is true with other important problems, but the answer is not to deny there is a problem.
“It has been difficult to make progress bi-laterally. At times talk has seemed to produce some progress, but that progress then disappears.
“Some then suggested unilateral action addressing China’s currency manipulation under U.S. countervailing duty and antidumping trade remedy laws. Others have proposed the imposition of an additional duty on all imports from China.
“In two weeks, the Obama Administration faces again, as past Administrations have an April 15th deadline, to decide whether to label China a currency manipulator in the Department of the Treasury’s semi-annual report.
“The Report requirements may well increase discussions about the use of multilateral fora to address the currency issue. The IMF is the most logical place for these discussions; however, to date, the institution has been unable to act effectively. Thus, some have suggested using multilateral negotiations through the G-20 to address the currency problem.
“Some have urged the United States bring a case in the WTO, but the WTO articles relating to currency have never been tested.
“We are very fortunate to have with us today four experts on China’s exchange rate policy and they will discuss the extent of the problem and alternative responses to address the problem.
“I now yield to ranking member Congressman Dave Camp for his opening statement.”
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