House Ways And Means Committee Hears Chinese Currency Testimony
James A. Morrissey, Washington Correspondent
The chairman of the House Ways and Means Committee weighed in on the Chinese currency controversy
by holding a one-day hearing to receive testimony from three high-powered economists and a noted
historian who are widely recognized as international trade experts. He also invited interested
parties to submit written comments.
In announcing the hearing, Committee Chairman Sander Levin, D-Mich., said: "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 Peoples 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."
Levin said that according to some estimates, the renminbi may be undervalued by 30 to 50 percent against the dollar, and he said the United States has been pressing China for years to allow the renminbi to appreciate. He quoted a recent article in the Economist that said: "Americans have been patient -- too patient in accepting the loss of several million U.S. manufacturing jobs because of China's determined pursuit of mindless mercantile policies. The absurdity of the current situation is that China's currency protectionism has more of an impact on American manufacturing employment than does U.S. fiscal policy."
In his opening statement at the hearing, Levin said he hopes the testimony at the hearing and comments from others will shed light on problems associated with China's currency policies and help consider possible solutions. All four of the economists agreed that the renminbi is undervalued, but they differed as to its impact on the U.S. economy and jobs, and on what should be done about it.
C. Fred Bergsten, director of the Peterson Institute for International Economics, told the committee he believes the undervaluation of the renminbi is "a blatant form of protectionism." He said it amounts to a tariff on all Chinese imports of 25 to 40 percent and sharply discourages purchases from other countries. He believes it would be incorrect to label U.S. efforts to counter this protectionism as a form of U.S. protectionism but should be seen, instead, as "anti-protectionist." Bergsten said that correction of the Chinese/Asian currency misalignments is "by far the most important component in President Obama's new National Export Initiative."
Bergsten suggested three possible steps to address the problem:
- Label China as a currency manipulator in the Treasury Department's foreign exchange report due April 15 and then enter into negotiations with China to resolve the issue.
- With the support of European countries, and as many of the developing economies as possible, seek a decision by the International Monetary Fund to launch consultations to pursue a remedy to the situation.
- With a similar broad coalition, the United States should exercise its right to ask the World Trade Organization (WTO) to constitute a dispute settlement panel to determine whether China is violating its obligations under WTO rules.
Niall Ferguson, an historian from Harvard University, also said China clearly is manipulating its currency, but he raised two questions as to how the problem should be addressed: "Should the U.S. Treasury brand Beijing as a currency manipulator in its April 15 report and should Congress pass the Currency Exchange Rate Oversight Reform Act introduced by 14 senators last week?" In answer to the first question, he said: There is no point in pretending that currency manipulation is happening, and the U.S. Treasury should "call a spade a spade." He believes a renminbi revaluation would benefit both the United States and China, as it would accelerate a move for China to become less dependent on exports and stimulate domestic consumption for its economic growth.
Ferguson recommended that the United States pursue the currency realignment with a multilateral rather than a bilateral approach, because other nations are affected by China's currency policy. He says the rise of China as an exporter has hurt other Asian nations as much as, if not more than it has hurt the United States. Clyde Prestowitz, president of the Economic Strategy Institute, also advocates a multilateral approach, but noting that this can take considerable time, he said the United States should not hesitate to file a complaint with the WTO and take actions allowed by international law against measures that "distort globalization."
Importers of textiles and apparel urged Congress and the Obama administration to avoid unilateral actions that could upset trade with China, saying a "collaborative" approach would be more productive. Julia K. Hughes, president of the U.S. Association of Importers of Textiles and Apparel, said threats of unilateral action risk escalating problems when the United States needs to be focused on fixing them. She added: "The Administration, along with the leadership of other trading partners, should be working hand in hand with China to expand consumer demand there and further open that market as a primary strategy for reducing both the bilateral and global trade deficit China."
Hughes contends that an increase in the value of China's currency is not going to solve the U.S. trade deficit, pointing out that supply chains are global, and imports from other countries would fill any void.The National Retail Federation (NRF), whose members are the largest importers of textiles and apparel, filed a statement with the committee calling for "prudence and thoughtfulness" in dealing with China trade issues.
The NRF acknowledged that there are "serious and legitimate issues with China" including inadequate protection of intellectual property rights, proliferating market access barriers, the need for a monetary system that allows for more flexible exchange rates and a fully convertible currency; and ensuring that China abides by its obligations under international trade rules. The retailers recommend using diplomatic means and the use of multilateral mechanisms to address those problems, and they say Congress should not support what they call "unilateral and unproductive and WTO illegal restrictions on imports of Chinese goods."
When the hearing was announced, the National Council of Textile Organizations (NCTO) issued a news release applauding Rep. Levin for conducting the hearing and citing what it sees as major problems with Chinese currency manipulation. NCTO President Cass Johnson said: "China's currency policy does nothing more than flood markets of countries like the United States with artificially cheap imports, creating dangerous trade deficits, surging overseas debt, massive job losses and continuing erosion of the manufacturing base." Johnson said his organization strongly supports the Currency Exchange Rate Oversight Act of 2010.
A coalition of U.S. fiber and textile manufacturers is planning to file written testimony prior to the April 7 deadline for submitting comments.
March 30, 2010