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Bob's Weekly Report - Free Trade Must Also be Fair Trade

Location: Unknown

June 2, 2005

Over the last decade the U.S trade deficit with China has exploded- from $30 billion in 1994 to $162 billion in 2004 and it is estimated that it could reach $240 billion this year. This makes up our largest trade deficit with any country.

I believe it is necessary to fully integrate China into the global, rules-based trading system. As the world's most populous nation, they offer a vast market to U.S. producers. But a fundamental requirement of this integration is that China adhere to certain basic trading principles.

China joined the World Trade Organization (WTO) in 2001 after years of negotiations in which they agreed to lower tariffs and remove market barriers. But U.S. officials monitoring China's implementation of its WTO commitments say that they have offered only a mixed record of compliance.

Recently folks have begun to focus on China's handling of their currency. Instrumental in China's growth has been their insistence on retaining an exchange rate vs. the dollar that is fixed and does not respond to varying economic conditions. Some experts estimate that the yuan is undervalued by as much as 40 percent. In holding its exchange rate, China protects itself from the shifts of the market, and essentially imposes a tariff on all imports and subsidies on all exports to the U.S. This has a dramatic adverse effect on U.S. exports to China and U.S. companies whose products compete with imports from China by making Chinese goods cheaper in the U.S. and American goods more expensive in China.

China's undervalued currency, and the diminished level of U.S. exports that it results in, contributes to the burgeoning U.S. trade deficit with China, which directly impacts American jobs. I am a cosponsor of legislation recently introduced in the Congress which would impose tariffs on goods coming in from a country like China that manipulates its currency to offset the trade benefit gained by the distortion of the value of its money. Specifically, this legislation would place a 27.5 percent tariff on goods from China if the Chinese government does not let market forces set the yuan's value. We must ensure that American goods are competing on a level playing field instead of being forced to compete domestically and internationally against "artificially" low-cost goods from China.

I also support legislation which calls on the president to vigorously enforce U.S. trade laws dealing with such practices.

I believe in free trade and the benefits that it brings to the American people. But we must be mindful of the inherent economic dangers when free trade is not also fair trade. We need to enforce the agreements we make.

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