The Committee Heard Testimony from the Following Witnesses

FROM: / Will Leahy, Manager, China Policy
TO: / Asia Task Force, China AmChams

I) Senate Finance Committee Hearing on China’s Currency

The Senate Finance Committee held a hearing this morning on China’s currency policies. Senator Max Baucus (D-MT) presided, with Ranking Member Grassley (R-IA), and Senators Bunning (R-KY), Stabenow (D-MI), and Smith (R-OR) in attendance.

The hearing was convened as part of the deal brokered last fall by Senators Schumer, Graham, Baucus, and Grassley, to table S.295 which would have applied a 27.5 percent tariff on all imports from China, and instead craft WTO-compliant legislation addressing China’s undervalued currency.

The Committee heard testimony from the following witnesses:

Panel 1:

·  Senator Charles Schumer (D-NY)

·  Senator Lindsey Graham (R-SC)

Panel 2:

·  Stephen S. Roach, Managing Director and Chief Economist, Morgan Stanley

·  Professor Eswar Prasad, Cornell University

·  Morris Goldstein, Senior Fellow, Peter G. Peterson Institute for International Economics

·  John Makin, Visiting Scholar, American Enterprise Institute

Full witness testimony can be found on the Committee web site.

In his testimony, Senator Schumer highlighted the broad bi-partisan frustration in the current Congress with China’s currency policies, and emphasized the “very real possibility” that “well-crafted, WTO compliant legislation will pass with a veto proof margin” in the 110th Congress. Schumer, however, did not provide a timeframe for when such legislation would be introduced.

Senator Graham described the current debate on China’s currency policies as a “defining moment” for the U.S.-China relationship, and emphasized his belief that doing nothing in the face of perceived Chinese intransigence would be as “draconian” as applying a 27.5 percent tariff on Chinese imports.

Stephen Roach, in his testimony, expressed the belief that targeting China’s currency is not the appropriate tactic for addressing the current bilateral trade deficit, highlighting the various structural factors responsible for it including the 1 percent net national savings rate in the US. Instead, he advocated for a more balanced approach including—efforts to encourage greater consumption in China, efforts to enhance intellectual property protection, more aggressive use of the WTO dispute resolution mechanism, and slow (3-5% per year) appreciation of the Chinese currency.

Eswar Prasad echoed many of Roach’s points, emphasizing in particular the potential unintended consequences for the global trading system of a rapid appreciation of the renminbi.

In their remarks, Morris Goldstein and John Makin highlighted the lack of a “code of conduct” on exchange rate policy within the international community. Both felt that the International Monetary Fund needed to provide greater leadership in addressing China’s and other countries’ currency policies; however they also admonished the Department of Treasury for its failure to declare China a currency manipulator in its semi-annual reports.

During the question and answer period, Senator Bunning vented his frustration with the lack of progress by both the Chinese and the Bush Administration. He and Debbie Stabenow have introduced a bill in the Senate, S.796, the “Fair Currency Act of 2007”, which would allow countervailing duties to be applied against countries found to have “exchange-rate misalignment”. Stabenow also announced her introduction today of a bill aimed at forcing Japan’s government to revalue its currency, which she and domestic automakers say would help rebalance the U.S. trade deficit with Japan.

Please contact Will Leahy (202-463-5326; ) with any questions.

This message and its contents are intended solely for the use of the Asia Task Force addressee. If you have received this message in error, please notify the sender immediately. If you would like to be removed from this distribution list, please email .