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

Statement of Elizabeth Dole
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

Thank you, Secretary Snow, for joining us here today. I want to commend you and your colleagues at the Treasury Department for your work on this recently-released International Economic and Exchange Rate Policy report. This report is a good outline of the problems inherent to the Chinese currency peg.

Since we first spoke about this issue in 2003, you have recognized my strong interest in the Chinese currency peg and have shown a sincere willingness to keep me informed of your progress including the call from China when you were discussing the issue with your counterparts there.

In the 1980's, as President Reagan's Transportation Secretary, I had my own experience negotiating with the Chinese government. While in Beijing I met with government leaders on maritime and other issues including allowing a U.S. airline to open an office in China. The repeated response from my Chinese counterparts was that they would, "allow the office soon." Unfortunately, that was their answer over and over again for many months. So I just indicated I'd leave behind the Assistant Secretary for Policy to help ensure the office got opened. And five days later we achieved our goal!

While I know your negotiations are far more complicated and far-reaching, with great ramifications for the international monetary system, I must say that my experience left me with the impression that the Chinese are sometimes reluctant to follow through, unless real pressure is applied. Given this fact, our message to the Chinese must be an insistence on action now.

We're all familiar with the manufacturing job losses that have hit us on a nationwide basis. Things have been especially hard for my fellow North Carolinians, with the available jobs in the textile and furniture industries having been cut in half since 1998. Earlier this week I met with John Bassett, president of the Vaughan-Bassett Furniture Company. He informed me that a full bedroom set imported from China sells for $399 in North Carolina and his company must pay $461 just for the raw materials to make the same bedroom set in the State. That is astounding. The peg on the Chinese currency is a large part of what makes that possible.

Textiles and furniture are not the only industries affected by the unfairness of the peg. North Carolina computer software companies are also deeply concerned about this issue, as well as high tech manufacturers. Just last week, Art Rutledge, President of Fawn Electronics - with about 100 employees in Elm City, North Carolina - was in my office. He explained that because the yuan is so undervalued, the materials for one small printed circuit card which they manufacture, that uses about five different parts, would cost them $1.98 in North Carolina. Unfortunately, we can buy the finished card from China for $1.57.

These business leaders tell me that they can compete with anyone, given a level playing field. The Chinese currency peg has given Chinese manufacturing an advantage that cannot be explained simply by their lower cost of labor, which we hear so much about. The finished product cannot cost less than the raw materials. That just does not make sense.

Secretary Snow, you have moved the bar with this recently-issued Treasury report, and I appreciate that. We have moved the bar here in the Senate. While two years ago we were calling for a freely floating yuan, today all we ask is that it simply be revalued. That's why I cosponsored an amendment to the State Department Authorization bill to pressure the Chinese to revalue. Sixty seven Senators voted in favor of this amendment, and only two weeks ago Senators Snow, Voinovich and I introduced legislation that would update the technical requirements in the statute for designation as a country that manipulates the rate of exchange between their currency and the dollar. I think it's clear that this is not an issue the Senate is willing to wait on. Given all of the evidence that has been available and referenced in this report I frankly am astounded that the Administration continues to report that the Chinese peg is not currency manipulation. While I appreciate all the steps the Administration has taken thus far, it is time to redouble those efforts.

Page eleven of this report states: "It is now widely accepted that China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions." Everyone here agrees with that Mr. Secretary. Now let's make sure that the Chinese back up their words with actions.

Thank you, Chairman Shelby, and Ranking Member Sarbanes. This is a critical issue to the people of North Carolina and to the United States as a nation.

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