[CTC] Punke and Siddiqui on recess appointments

[Andrew Gussert]

Hearing
<http://waysandmeans.house.gov/Hearings/hearingDetails.aspx?NewsID=11061>
on China's Exchange Rate Policy 

Click here <http://www.youtube.com/watch?v=_u3p2F5gEO0>  to watch a video of
Chairman Levin's opening statement

Click here <http://waysandmeans.house.gov/singlepages.aspx?NewsID=10951>  to
provide a submission for the record

 

FOCUS OF THE HEARING:

 

Economists generally agree that the Chinese currency (the renminbi - "RMB" -
or "yuan") is substantially undervalued as a result of market intervention
by the Government of the People's Republic of China.  This policy
artificially raises the price of imports into China and suppresses the price
of exports from China.  The purpose of this hearing is to consider:  (1) the
immediate and long-term impact of China's exchange rate policy on the U.S.
and global economic recoveries and, more specifically, on U.S. job creation;
and (2) steps that could be taken to address the issue.

 

Opening Statement of Chairman Sander Levin (D-MI)

Committee on Ways and Means, Chairman

March 24, 2010

 

"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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