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Camp Opening Statement: Hearing on China’s Exchange Rate Policy

September 15, 2010

This is our third hearing on China this year.  At each hearing, this Committee has sent the clear and unequivocal message that this Congress is frustrated by China’s continued bad faith and aggressive pursuit of protectionist policies that jeopardize our economic relationship.  China must end its policy of economic nationalism and open its market to American-made goods and services and American investors. 

However, in focusing exclusively on China’s currency policy, this hearing is a lost opportunity.  As significant as China’s currency misalignment is, our problems with China are so much larger. 

I certainly agree that, as the IMF has determined, China’s currency policy has resulted in fundamental misalignment of the RMB.  China’s currency is undervalued, plain and simple.  I agree that China must let the RMB appreciate and move quickly toward allowing market supply and demand to determine the value of its currency. 

But at the same time, we cannot lose sight of more fundamental problems with China’s economy that affect our trade balance, including the increasingly blatant and disturbing increase in the economic dominance of state-owned enterprises and the proliferation of non-tariff barriers preventing U.S. companies from exporting to China. 

For example, China must address its woefully inadequate protection of intellectual property, eliminate subsidies to Chinese companies, remove harmful “indigenous innovation” policies, end its restraints on exports of raw materials and rare earth minerals, and eliminate the myriad other barriers to U.S. exports.  China must introduce global best practices into its banking sector, mature its financial markets, move towards liberalizing its capital account and open more comprehensively to foreign direct investment.  It also must do more to ensure that Americans are not injured by goods with dangerous features or harmful ingredients.

That said, while we shouldn’t obsess over the value of the RMB at the expense of our other priorities, it would be an enormous mistake to give up completely on addressing it. 

But the legislation being discussed today, H.R. 2378, is not the best way forward.  First, as I’ve noted, it would severely complicate our ability to deal with even more significant outstanding Chinese practices I have outlined.  Second, any measure taken to address China’s currency regime must be consistent with our international commitments and the overarching values of the multilateral trading system.  But it appears that imposing antidumping and countervailing duties related to China’s currency manipulation would likely run afoul of our WTO commitments and would set American exporters and American workers up for significant legal retaliation.  We must adhere to its international obligations, even when they are inconvenient.  We cannot credibly pursue remedies to China’s WTO-violations if we are acting inconsistently with our own obligations.

Third, I am concerned that the proposed legislation would chill, if not shut down outright, significant trade in products needed by U.S. manufacturers to remain competitive in the global marketplace.  It would raise prices for manufacturers who rely on inputs from China, forcing them to raise prices for U.S. consumers, risking inflation and threatening U.S. jobs. 

So instead of passing H.R. 2378, I believe the Obama Administration should set forth a timeline to actively and aggressively address China’s currency policy in high-level bilateral summits, like the Strategic and Economic Dialogue. The Administration should also work with our allies to establish a robust, multilateral process—perhaps through the G20, a G20 sub-group, the IMF, or elsewhere—so that other countries, particularly China’s neighbors in Asia, can bring new points of pressure to bear.  I was disappointed that currency issues did not seem to be a focus of the G-20 meeting in June, and this should change at the November meeting. 

The Administration should also restart languishing Bilateral Investment Treaty negotiations with China, which could help on many of these issues, including currency.  I am impatient with the Administration’s long, inexplicable delay, which allows our trading partners to continue to have more rights in China than we do.

Finally let me close by saying that, to address our trade imbalance, the United States needs to get its own fiscal house in order.  China wouldn’t be accumulating hordes of currency reserves and U.S. Treasuries as it now if the United States stopped racking up debt at the current unsustainable pace.