DODD STATEMENT ON CHINA ECONOMIC AND EXCHANGE RATE POLICY HEARING

WASHINGTON – Today Senate Banking Committee Chairman Chris Dodd (D-CT) held a hearing on the Treasury Department’s Report on International and Exchange Rate Policies. The Committee heard from Treasury Secretary Timothy Geithner, and discussed the relationship between the United States and China.

 

“As we meet today, our nation is still recovering from the worst economic crisis in over seventy years. Millions of American families have lost their homes to foreclosure, and millions of American workers have lost their jobs to market forces beyond their control. And while the US has weathered recessions in the past, many of the jobs lost this time around will not be coming back. There are many causes of our current predicament, but there is no question that the economic and trade policies of China present roadblocks to our recovery.

 

“China is the world’s second largest economy, and is our biggest trading partner. Both our nations have benefited from this relationship over the past few decades. However, too often, a disturbing pattern of behavior has emerged, which is deeply troubling to the U.S. and others. This behavior goes beyond China’s well-documented policy of manipulating currency values. We have seen the Chinese government display an inability to protect the intellectual property rights of foreign innovators from software developers to Hollywood filmmakers. We have seen calculated acquisitions of natural resources in developing nations in Africa and elsewhere, including regimes with troubling human rights records. We have seen military spending buildup at double-digit increases, even during the 2009 global recession.  And, we have seen violations of international trade agreements, unfair dumping of underpriced goods on our shores, and anticompetitive subsidies that threaten to undermine the development of alternative and green energy here in our own country.

 

“This is an election year, and there is no shortage of political rhetoric on the topic of China. However, I am not running for office, and what I say today is motivated only by my conviction that the time for action has come. In fact, it came a long time ago.

 

“This administration must be the one who takes a stand. For years the Treasury Department has relied on a strategy of dialogue which has yielded few meaningful reforms.  It is clearly time for a change in strategy.  It is time to move beyond just talking.  We must take action.   

 

“In the last financial crisis we learned that what you don’t know can hurt you – that arcane financial instruments on Wall Street can cause real pain for families and business who have never even heard of a credit default swap. That interconnection goes beyond the familiar Wall Street/Main Street divide. Something as seemingly abstract as Chinese currency policy can mean a shuttered factory in Iowa.”

 

 

 

“The Committee will please come to order. 

 

“This morning, the Committee meets to consider the Treasury Department's semi-annual Report on International Economic and Exchange Rate Policies.  I welcome Secretary Geithner back to the Committee today as we discuss this report, specifically its findings regarding China—our nation’s largest trading partner.  After 19 months working with you to stabilize and reform the financial system, we are all eager to hear about the international dimensions of the economic recovery.

 

“As we meet today, our nation is still recovering from the worst economic crisis in over seventy years. Millions of American families have lost their homes to foreclosure, and millions of American workers have lost their jobs to market forces beyond their control. And while the US has weathered recessions in the past, many of the jobs lost this time around will not be coming back. There are many causes of our current predicament, but there is no question that the economic and trade policies of China present roadblocks to our recovery.

 

“China is the world’s second largest economy, and is our biggest trading partner. Both our nations have benefited from this relationship over the past few decades. However, too often, a disturbing pattern of behavior has emerged, which is deeply troubling to the U.S. and others. This behavior goes beyond China’s well-documented policy of manipulating currency values. We have seen the Chinese government display an inability to protect the intellectual property rights of foreign innovators from software developers to Hollywood filmmakers. We have seen calculated acquisitions of natural resources in developing nations in Africa and elsewhere, including regimes with troubling human rights records. We have seen military spending buildup at double-digit increases, even during the 2009 global recession.  And, we have seen violations of international trade agreements, unfair dumping of underpriced goods on our shores, and anticompetitive subsidies that threaten to undermine the development of alternative and green energy here in our own country.

 

“This is an election year, and there is no shortage of political rhetoric on the topic of China. However, I am not running for office, and what I say today is motivated only by my conviction that the time for action has come. In fact, it came a long time ago.

 

“This administration must be the one who takes a stand. For years the Treasury Department has relied on a strategy of dialogue which has yielded few meaningful reforms.  It is clearly time for a change in strategy.  It is time to move beyond just talking.  We must take action.   

 

“In the last financial crisis we learned that what you don’t know can hurt you – that arcane financial instruments on Wall Street can cause real pain for families and business who have never even heard of a credit default swap. That interconnection goes beyond the familiar Wall Street/Main Street divide. Something as seemingly abstract as Chinese currency policy can mean a shuttered factory in Iowa.

 

“Treasury is required to issue this report by law and it requires testimony from the Treasury Secretary. 

 

“The latest report was released in July, following an announcement from China’s central bank that it would enhance currency flexibility after a 2-year period of preventing appreciation.  The Treasury Department called this announcement a “significant development.”  Yet, China’s currency has appreciated by only 1.5 percent since the June announcement and analysts estimate the currency remains undervalued by at least 20 percent against the dollar.  Years of maintaining an undervalued currency has resulted in lost jobs and a widening trade deficit for the American people. 

 

“Today’s hearing also takes place just days after the Japanese government intervened in currency markets for the first time in six years to halt the appreciation of the yen.  It is too early to tell what effects Japan’s action will have on U.S. economic interests.  But one thing is clear:  unilateral currency intervention by Japan, China, or any other country represents a gap in international cooperation on exchange rate policy—a centerpiece of the Bretton Woods framework for global economic governance.  A key objective of the International Monetary Fund is to avoid “competitive exchange depreciation among its members.”  Yet the IMF has only sent two special missions to investigate exchange rate issues in the last 25 years—to Sweden in 1982 and Korea in 1987.

 

“And, while we’ve accomplished much to harmonize financial reforms through the G20, this venue has also produced limited results in the area of exchange rate policy.  More must be achieved at the November G20 summit in Seoul to strengthen domestic and international exchange rate surveillance.  We must begin to recognize and remedy exchange rate policies that are inconsistent with international standards and harm America’s interests.  As I mentioned so many times during the financial reform debate, we need to have a system in place to deal with the next crisis, not just the previous crisis.  Balanced global growth and job creation are critical to building a sustainable recovery. 

 

“Many of my colleagues on both sides of the aisle and in both chambers of Congress have put forth proposals to remedy this situation.  Senators Schumer, Brown, and Bunning on this Committee have pursued legislation for years.  And, Senator Shelby and I worked very closely on S. 1677, the Currency Reform and Financial Markets Access Act of 2007, which passed out of this Committee by a vote of 17 to 4 in August 2007.  I am eager to hear about other ideas from today’s witnesses. From Secretary Geithner, I am particularly interested to hear your plans for the upcoming G20 summit, and to learn how this Committee and the Congress can help you ensure the continued international competitiveness of the United States.

 

“For years, American workers have not been able to compete on a level playing field because of China’s policies, and now they are struggling to secure jobs in the midst of a slow recovery from the global economic crisis. While it is clear China’s currency is undervalued, the Treasury has been reluctant to label China a currency manipulator.  Mr. Secretary, with so many Americans out of work and struggling to make ends meet, we are eager to hear an explanation for this continued reluctance to act. 

 

“It is imperative that this Committee and the American people understand what additional tools we need domestically and internationally to combat these problems.

 

“With that, I turn to Senator Shelby.”