FOR IMMEDIATE RELEASE: November 19, 2009
SCHUMER, GRAHAM PROD COMMERCE DEPARTMENT TO INVESTIGATE CHINESE CURRENCY MANIPULATION
Senators, Pointing To US Manufacturing Job Losses Caused By China's Misaligned Currency, Pursue Alternative Path To Rebuke Chinese
Senators: Undervalued Currency Is Paramount Issue In US-China Relations; China Dodged It During Summit This Week
WASHINGTON, DC—As President Obama concluded his trip to Asia, U.S. Senators Charles E. Schumer (D-NY) and Lindsey Graham (R-SC) petitioned the Commerce Department Thursday to investigate China’s currency manipulation, a potential first step in a process that could lead to significant, US-imposed tariffs on imports from China.
The Obama administration, like the Bush administration before it, has not exercised its authority under a 1988 law to declare the Chinese guilty of currency manipulation in a report it submits to Congress twice a year. Schumer and Graham, in asking the Commerce Department to conduct its own probe, are pursuing an alternative path to formally rebuke China. If the agency determines that China’s currency practices amount to a form of subsidy that is actionable under international trade agreements, the Chinese could be subject to stiff penalties.
“Commerce has authority under existing law to initiate investigations that can help U.S. industries and protect U.S. jobs, and we are urging the Department to use that authority,” the senators wrote in a letter to Commerce Secretary Gary Locke.
“We certainly are aware that China's manipulation of its currency is a sensitive issue. Nevertheless, a desire to avoid international political controversy is not an excuse to avoid enforcement of U.S. law,” they added.
Schumer and Graham authored Congress’ original proposal to prod the Chinese to let its currency float and have been leaders in the fight against currency manipulation since 2004, when the U.S. trade deficit with China ballooned to the largest imbalance ever recorded with a single country. The country’s manipulation of its currency, long bemoaned by international economists but never formally acknowledged by either the Bush or Obama administration, has kept Chinese export prices artificially low and prices on U.S. exports into China artificially high, causing catastrophic manufacturing job losses in the United States.
A congressional advisory panel today recommended that Congress take legislative action to offset the impact on the U.S. economy of China’s currency manipulation. The Schumer-Graham Currency Exchange Rate Oversight Reform Act would do just that. The bipartisan U.S.-China Economic and Security Review Commission was formed by Congress in 2000 to investigate the economic and security implications of growing trade with China.
Earlier this week, Federal Reserve Chairman Ben Bernanke issued a rare warning that U.S. regulators would monitor the relative weakness of the U.S. dollar. Schumer and Graham said Tuesday that the Chinese were at least partly to blame for keeping the dollar weak. To suppress the value of its own currency, the Chinese have relied on a strategy of purchasing and holding vast amounts of U.S. treasuries. The result has been to keep interest rates low in the United States, which inflated the U.S. real estate bubble that in turn gave way to a recession.
Schumer and Graham are the original authors of the leading proposal in Congress to hold China accountable for its actions on currency. They have introduced a version of the legislation in three successive Congressional terms. In 2007, their bill passed the Senate Finance Committee on a 20-1 vote, but it never came up for consideration on the floor of the Senate. Just by pushing the proposal, however, Schumer and Graham have brought attention to the issue of China’s currency manipulation. For three years, from 2005 to 2008, China even relented and did not peg its currency to the dollar, spurring a 17 percent appreciation in the yuan. With the onset of the global recession, however, the Chinese quickly reverted to a pegged yuan in order to keep its exports relatively cheap.
In January, following Timothy Geithner’s confirmation hearing on his nomination to become Treasury Secretary, he responded to written questions from Schumer by stating flatly that China was indeed manipulating its currency. The frank comment did not, however, yield a formal finding by the administration when the Treasury Department issued its mandatory semi-annual report this past May.
A copy of Schumer and Graham’s letter to Locke appears below.
November 19, 2009
The Honorable Gary Locke
Secretary of Commerce
1401 Constitution Avenue, NW
Washington, DC 20230
Dear Secretary Locke:
We write to express our serious concern that the Commerce Department is not doing everything that it can to help enforce U.S. trade laws. U.S. manufacturers have alleged repeatedly that China's manipulation of its currency is a countervailable subsidy. Yet, the Department has refused—at least 10 times in the past two years—even to launch an investigation into U.S. manufacturers' allegations. In short, Commerce has authority under existing law to initiate investigations that can help U.S. industries and protect U.S. jobs, and we are urging the Department to use that authority.
There is no doubt that the Chinese government is manipulating its currency to keep its value lower than it would otherwise be, thereby giving its exports a significant trade advantage. No further proof is needed than just seeing what has happened since March of this year, when the dollar reached its peak value for 2010. Since March, the broad dollar index is down more than 11 percent. Yet against the Chinese yuan, the dollar has dropped only about one-tenth of one percent—basically no movement at all.
In short, after a couple of years of very modest progress, China's government has once again fixed the yuan against the dollar. There is nothing happening, despite a growth rate in China expected to reach nine percent this year. This is absolutely unacceptable, particularly given China's repeated promises to reform its currency practices.
We certainly are aware that China's manipulation of its currency is a sensitive issue. Nevertheless, a desire to avoid international political controversy is not an excuse to avoid enforcement of U.S. law. In the 2003 Korea DRAMs case, for example, the Department did not shy away from launching an investigation into whether the Korean government forced private banks to funnel billions of dollars to a bankrupt Korean computer chip manufacturer.
We also are aware that the previous administration shied away from Commerce Department or other agency action on China currency, using the excuse that the Treasury Department is the sole agency with expertise on currency issues. This excuse is equally unpersuasive. Treasury has expertise in taxation provisions as well, yet that does not stop the Commerce Department from launching investigations into tax programs in the context of countervailing duty investigations.
The Department must not shirk its responsibilities on this issue. The allegation that China provides a subsidy to its exporters by manipulating its currency should be assessed no differently than any other subsidy allegation. The Department has a statutory obligation to consider the evidence provided by U.S. manufacturers and to make a substantive decision on whether to launch an investigation. Time after time the Department has failed to do so, instead relying on a set boilerplate excuse for not initiating an investigation. Our trade laws are intended to protect U.S. industries hurt by unfair trade practices—such as foreign government subsidization of exports. The laws are useless if the agency charged with enforcing the laws fails to do so.
There can be no doubt that China's policy of large-scale intervention in the exchange markets and the significant undervaluation of its currency acts as a subsidy to Chinese exports to the United States. We respectfully urge you to give due consideration to an allegation that China's manipulation of its currency is a countervailable subsidy. The Commerce Department should use the powers it has under existing law to act on this issue and assist U.S. manufacturers that are facing challenging economic times.
Charles E. Schumer Lindsey Graham
United States Senator United States Senator