Committee Statement: "The Report to the Congress on International Economic and Exchange Rate Policies"

Statement of Richard Shelby
U.S. Senate Committee on Banking, Housing, and Urban Affairs
"The Report to the Congress on International Economic and Exchange Rate Policies"
May, 26 2005

Washington, D.C. - I am very pleased this morning to welcome Secretary of the Treasury John Snow to testify on the Treasury Department's Report to the Congress on International Economic and Exchange Rate Policies.

Secretary Snow, the Treasury report is of great interest to this Committee and will provide us much to debate this morning. As you are well aware, many members of Congress, including myself, find the continued imbalance of trade with China to be a significant concern.

The U.S. current-account deficit hit a record $666 billion last year, or 5.6 percent of GDP. Coinciding with this deficit has been the purchase of large volumes of Treasury securities by the Chinese and Japanese central banks. As of March 2005, Japan's reserve holdings of Treasury securities stood at $679.5 billion, while the value of China's reserves were at $223.5 billion. While some may argue that these numbers are a natural outgrowth of globalized financial markets, the numbers also raise questions about whether the current world trade situation presents a level playing field. The continuing weakness in the manufacturing sector make the trade and exchange rate policies in China and Japan, in particular, a tangible issue to U.S. businesses and taxpayers.

Treasury's May report indicates that no major trading partner of the United States met the technical requirements for currency manipulation under the Omnibus Trade and Competitiveness Act of 1988 during the second half of 2004. However, the report went on to indicate that "Current Chinese policies are highly distortionary and pose a risk to China's economy, its trading partners, and global economic growth". As you will hear this morning, many members of Congress were disappointed to hear that once again Treasury had failed to make a currency manipulation determination.

Secretary Snow, this Committee would like to engage you in a serious discussion this morning about the specific measures the Administration will take in the next six months to move China forward on a flexible rate path. Over the long term, both the U.S. and the global economy will benefit most from the continued pursuit of free trade and flexible exchange rates policies. The most desirable way to reduce our current account deficit would be through stronger growth abroad and more open trading markets and policies.

I look forward to a thoughtful discussion this morning so that we might all leave this hearing with a broadened awareness of the situation and the direction ahead.

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