Chinese Currency, Congressional Hearing Experts Urge Action

Chinese Currency Manipulation is “costing the United States jobs and economic growth” says congressional hearing.
Chinese Currency, Congressional Hearing Experts Urge Action
Dr. Derek Scissors doubts that punishing China for undervaluing its currency would do anything about the trade deficit or create jobs. He spoke Sept. 14 at the Heritage Foundation, where he is a Research Fellow. (Gary Feuerberg/ Epoch Times)
9/22/2010
Updated:
10/1/2015

<a><img src="https://www.theepochtimes.com/assets/uploads/2015/09/Derek+Scissors_Sep14_10+036M.jpg" alt="Dr. Derek Scissors doubts that punishing China for undervaluing its currency would do anything about the trade deficit or create jobs. He spoke Sept. 14 at the Heritage Foundation, where he is a Research Fellow.  (Gary Feuerberg/ Epoch Times)" title="Dr. Derek Scissors doubts that punishing China for undervaluing its currency would do anything about the trade deficit or create jobs. He spoke Sept. 14 at the Heritage Foundation, where he is a Research Fellow.  (Gary Feuerberg/ Epoch Times)" width="320" class="size-medium wp-image-1814435"/></a>
Dr. Derek Scissors doubts that punishing China for undervaluing its currency would do anything about the trade deficit or create jobs. He spoke Sept. 14 at the Heritage Foundation, where he is a Research Fellow.  (Gary Feuerberg/ Epoch Times)
WASHINGTON—Chinese currency was scrutinized at a congressional hearing where U.S. officials and lawmakers railed against China’s exchange rate policies as the nation’s economy continues to be hampered by high unemployment and trade imbalances.

At a hearing last week, House Ways and Means Chairman Sander M. Levin (D-Mich.) expressed his concern that “the large and persistent U.S. trade imbalance with China” are “costing the United States jobs and economic growth.”

Levin wants China’s alleged manipulation of its currency to be “resolved” by action from the Congress and the Obama Administration. Several Congressmembers and monetary and financial experts supported Levin’s view, increasing the likelihood of congressional action targeting China for pegging its currency to the dollar, as the mood of the country worries over the bleak economy.

Treasury Secretary Timothy Geithner said that China’s exchange rate policy negatively impacts American businesses and workers.

“There has been essentially no movement of the renminbi against the dollar over the past two-plus years,” Geithner said, who said that the renminbi was “significantly undervalued,” and its undervaluation needs to be addressed.

Dr. C. Fred Bergsten, Director of the nonpartisan Peterson Institute for International Economics, testified at the hearing: “To lead this effort credibly, the Administration must of course designate China as a currency manipulator—as it has been for at least seven years,” said Dr. Bergsten, who has authored 40 books on international economics and trade policy.

Experts agree that China allowed the renminbi to appreciate over time against the dollar from mid-2005 through mid-2008, but then intervened again, pegging their currency to the dollar. Geithner lamented the fact that “China’s real trade-weighted exchange rate is now only 4.9 percent stronger than it was on average from 1998-2002, an unjustifiably small change given that China’s productivity doubled during that time.”

In other words, until the onset of the global recession in 2008, China’s currency did appreciate about 20 percent, but then China re-established controls, and now the gap is widening again.

Currency Reform for Fair Trade Act

On June 19, one week before the G-20 Summit in Toronto, China announced that it would allow flexibility in its exchange rate, giving new hope that its currency would appreciate again.

However, the Chinese have allowed their currency to appreciate against the dollar by only 1 percent, and the currency has actually depreciated against a basket of other foreign currencies. During this three-month period, China has aggressively intervened in the foreign exchange market to head off the upward pressure of market forces on the Chinese currency, Geithner testified.

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Actions designed to impact China’s currency policy include legislation to raise the issue with the International Monetary Fund (IMF), and the initiation of formal dispute settlement consultations with China within the World Trade Organization (WTO). Raising the matter with the IMF is not taken very seriously because to date, the IMF has not been able to persuade China to desist in its policies and the IMF has no enforcement capability.

Also, currently under serious consideration is a new legislation targeting China’s currency manipulation, the Currency Reform for Fair Trade Act (H.R. 2378), which if enacted would invoke trade remedies for undervalued currencies, declare China’s currency manipulation as an “export subsidy” under WTO rules, and allow the U.S. to apply “countervailing duties,” essentially a kind of tariff on Chinese goods.

The bill was introduced in May 2009 by Rep. Tim Ryan (D-Ohio) and currently has 146 co-sponsors.

Trade Imbalances and Jobs Lost

Several monetary experts and corporate leaders also denounced China’s currency tactics. Dan DiMicco, CEO of Nucor Corporation, said that “China’s practice of manipulating its currency, along with other protectionist measures, has driven up our trade deficit and is having a devastating impact on our manufacturing sector. Our trade deficit with China grew from $30 billion in 1994 to $256 billion in 2007.”

“China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy, [but]…an undervalued currency always promotes trade surpluses, and China is no different,” economist and Nobel laureate Paul Krugman wrote in a recent New York Times column.

Rep. Ryan demonstrated that a number of manufacturers in his district were hurt by China’s currency manipulation.

Circle Mold and Machine from Tallmadge, Ohio makes molds for the automotive industry, Backyard Buddy of Warren, Ohio makes electric-powered auto lifts, and Wheatland Tube makes steel pipe. “These companies and similar companies in [our] congressional districts are being asked to compete not just with their business competitors in China, but with the Chinese government itself,” Ryan said.

“By artificially undervaluing its currency, the Chinese government subsidizes all Chinese exports 25 to 40 percent and places the equivalent of a 25 to 40-percent tax on imports of goods made in the United States. This policy directly resulted in the loss of between 1.5 million and 3 million American manufacturing jobs, while our trade deficit with China has grown to over $220 billion dollars a year,” said Rep. John Boccieri (D-Ohio).

No Easy Solution

Dr. Derek Scissors said if trade measures were adopted, Chinese goods would become more expensive, and production of such goods may not necessarily return to the United States.

Those jobs would shift to other low cost areas, such as Vietnam and Bangladesh, he said. We can apply duties to Chinese goods, but “cannot simply turn Chinese losses into American gains.”

Scissors also said the exchange rate is not a direct cause of the trade deficit, but it stems from Americans purchasing more than they earn.

Rep. Adrian Smith (R-Neb.) said that the Committee that Agricultural products are America’s number one export, and about 17 percent of raw U.S. agriculture products are exported annually, valued at $43.5 billion.

“I agree China should move toward a market-determined exchange rate. But in trying to achieve that goal, I ask you to please ensure our current export markets are not threatened because Congress has taken questionable legislative action which invites retaliation,” Rep. Smith said.

Rep. Lynn Jenkins (R-Kan.) agreed with the consensus that China needs to float its currency to arrive at its real value, but the Congresswoman from Kansas was worried about how actions by the Committee would impact Kansas agricultural exports: wheat, soybeans and corn, which she said represent large import commodities in China.

Agriculture exports to China totaled $10.6 billion in fiscal year 2009 and are expected to reach nearly $12 billion this year, said Jenkins, citing federal government sources.

“Many proposals [to compel China to revalue its currency] … could hamper agriculture markets, raise prices for U.S manufacturers, and further threaten U.S. jobs,” said Jenkins.

Jenkins advised the Committee to proceed with “great caution.”