EXCHANGE RATE OF CHINESE CURRENCY
Mr. VOINOVICH. Mr. President, I rise today to discuss last Wednesday's vote against tabling the Schumer amendment. The Schumer amendment would call on China to move toward a flexible rate or face corrective tariffs on their exports to the United States. Passing the amendment would be a responsible way for the Senate to address the significant problems caused by China fixing the exchange rate of its currency, known as the renminbi or yuan, to the United States dollar.
I have been concerned about China's trade policies for some time. I am particularly concerned about the undervaluation of the Chinese currency caused by China's currency peg. Presently, the yuan is undervalued between 15 and 40 percent. This systematic undervaluation of China's currency makes China's exports less expensive and puts United States workers at a severe disadvantage. As a result, the United States has lost thousands of manufacturing jobs due to the unfair competition with China's exports with prices that are artificially low on account of the undervaluation of the yuan. This is both unfair and it is unacceptable.
China's undervalued currency also harms China's economy. The Chinese people pay much higher prices for their imports and China is presently forced to keep its interest rates artificially low to support the currency peg, which is causing inefficient investment and excessive bank lending in China. Moreover, this undervaluation of the Chinese currency is fueling the dramatic rise of the United States trade deficit with China and distorting trade relationships around the globe.
Currently, we have a $162 billion trade deficit with China, the largest that we have with any country in the world. Accordingly, supporting efforts to get China to move forward toward a flexible exchange rate is consistent with supporting a more open and efficient global marketplace.
I was recently in China and had the opportunity to meet with Premier Wen Jiabao, member of the Politburo Standing Committee and the Chinese Communist Party's Central Committee. I made precisely these points to him: That it is in China's best interest to move toward a flexible exchange rate, and that the Chinese currency peg benefits neither China nor the United States. I urged him to support moving China toward a flexible exchange rate.
One of the primary arguments Chinese officials made to defend China's currency peg is the banking system is not sufficiently developed for a flexible exchange rate, an argument that Secretary of the Treasury John Snow makes on occasion when he gives reasons why he is not pushing them harder for them to stop fixing their currency.
I have an article from The Economist that helps explain in detail why exchange rate flexibility is in China's best interest, along with the best interest of the United States. The title of the article from March 19, 2005 is: ``China Ought to Allow More Flexibility in Exchange Rate, Sooner Rather Than Later.''
I ask unanimous consent to have it printed in the RECORD.
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Mr. VOINOVICH. I also urge my colleagues to read a paper by the staff of the International Monetary Fund entitled ``Putting the Cart Before the Horse: Capital Account Liberalization and Exchange Rate Flexibility in China.'' That is a January publication by the IMF. I would have asked it be printed in the RECORD, but it is 30 pages long and I do not want to burden the Congressional Record with 30 pages. If my colleagues are interested in getting a copy of that article, I would be more than happy to supply it.
These papers show how exchange rate flexibility will facilitate economic development in China and why China does not have to wait until its banking system is more fully developed to move toward a flexible exchange rate.
Moreover, they note that China does not need to immediately float its currency to remedy the problems caused by an undervalued currency. All China needs to do is take steps in that direction, such as adopting a wider exchange rate ban or pegging the exchange rate to a basket of currencies instead of the dollar alone, for example, a basket of currencies in the ASEAN countries, including Japan. Either of these policies would likely cause an upward revaluation of the yuan. Unfortunately, the Bush administration has refused meaningful action to get China to move toward a flexible exchange rate.
Last year--I remember it well--on September 8--that happens to be my wedding anniversary--four of our leaders in this country summarily said there is no problem in terms of the exchange rate and they refused to go forward with something called a 301 investigation. The 301 investigation is allowable under the WTO. That is the way you bring into question whether somebody is following the rules. They said, no, we are not going to do it. Imagine what kind of a message that sent to the leaders of the Chinese Government, that we were not even willing to look at a 301 investigation. That was a mistake.
The United States-China Economic and Security Review Commission, a bipartisan commission established by Congress to examine China's trade policies, has concluded that China's exchange rate policy violates both its International Monetary Fund and World Trade obligations. That was a bipartisan commission that came together and issued this report. The commission said China is intentionally manipulating its currency for trade advantage in violation of its trading agreements. Yet the administration refuses to act. Unless the United States exerts direct pressure on China, however, it is unlikely that China will address the undervaluation of its currency. When I asked the question of Premier Wen, he said, We know there is a problem, but we are not sure when we will do it.
I can say they will not do it unless we continue to put pressure on them to do it and convince them that, again, it is not only in our best interest but their best interest if they want to be a player in the global marketplace.
That is why Wednesday's vote was important. It showed the Senate is willing to take matters into its own hands and take effective steps to address the serious problem if the administration continues to refuse to do so. No one wants to see tariffs imposed on Chinese exports, but the United States needs to take action to address China's unfair exchange rate policy. I hope Wednesday's vote will motivate the administration to do more to get China to address the serious market distortions caused by the undervaluation of China's currency.
I believe in fair trade and improving our trading relationship with China. I was one of the leaders in the Senate to approve normal trade relations with China. I wrote articles in Ohio magazines. In fact, I gave a copy of an article to Premier Wen to prove to him I am not a protectionist, I am a free trader.
But I also believe in fair trade. It represents a huge potential market for our exports. If we want to have trade with China, though, China must be a better trading partner, starting with its exchange rate policies. Furthermore, if we want to have a free and fair global trading system, China must take actions to move toward a flexible exchange rate. I, therefore, believe Wednesday's vote was a responsible step aimed at advancing global trade and, in particular, America's long-term trading relationship with China.
I say to the Presiding Officer, as you know, there was an agreement made that it would be pulled down from the foreign relations authorization bill, and this is going to be considered again. There is an agreement, in the form of a UC, that we will be bringing it up again. I hope before the Senate considers voting on that amendment with an up-or-down vote the administration will get the message that they have to do something to show a little bit of spirit and indicate to us that they understand and know that the Senate and the House of Representatives are serious about moving forward to deal with this problem.
I also think the vote on this particular amendment sends a strong signal, a signal to Premier Wen and to President Hu that we are concerned about this issue. I know they are concerned about jobs. We are concerned about jobs. They have to understand that. I am hoping instead of the administration looking at this as some kind of a negative action on the part of the Senate, that they will see that we are helping them communicate the message to the people over there that we are serious about a problem.
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