Chairman Sarbanes, members of the Committee, I am glad to have the opportunity to talk with you today on behalf of the thirteen million working men and women of the AFL-CIO about the economic impacts of the over-valued dollar.
As we struggle to escape the grip of recession, the over-valued dollar represents a serious problem. It is also causing long term damage by destroying our manufacturing base. If we fail to redress the problem there is a danger that our fragile recovery will be short-lived, pushing us into a double-dip recession.
Manufacturing is ground-zero of the recession, and its troubles are intimately connected to the dollar. Since March 2001 we have lost 1.4 million jobs, of which 1.3 million have been manufacturing jobs. Manufacturing has therefore accounted for 93 percent of all job losses despite being only 14 percent of total employment. Today, manufacturing employment is at its lowest level since March 1962.
Business has slammed the brake on investment spending, but fortunately the American consumer has kept the recession milder than anticipated. However, a strong recovery that restores full employment needs a pick-up in investment spending. And that will not happen as long as currency markets give a thirty percent subsidy to our international competition.
Over the last five years our goods trade deficit has exploded from $198 billion to $427 billion, costing good jobs across a wide array of industries.
Many of these jobs will never come back. These are higher paying jobs that have been the ladder to the American dream for millions of Americans. But now we are kicking away that ladder.
Manufacturing has faster productivity growth, and productivity growth is the engine of rising living standards. But now we are shrinking our manufacturing base, and that is bad for future living standards.
The Administration has shown blind indifference to these problems. Arguments for a "strong dollar" do not wash.
Inflation is not a problem, and there is no evidence that a lower dollar will lower the stock market or raise interest rates. Those who say we need a strong dollar to finance the trade deficit have got the reasoning back-to-front. We need to finance the trade deficit because we have an over-valued dollar.
It is time for a new policy that puts American jobs and American workers first.
It is unacceptable that Japan depreciate its currency. This will not solve Japan's problems, and will only export them to its neighbors and us.
China exemplifies all that is wrong with currency markets. It has a massive trade surplus and vast inflows of foreign direct investment. In a free market, China's currency should appreciate, but it does not because of government manipulation. This is a problem that appears in different shades in many countries.
American workers are paying the price of currency manipulation. Trade cannot be "fair" when we allow countries to manipulate exchange rates to win illegitimate competitive advantage.
Those who argue we can do nothing about exchange rates abdicate the national interest. The historical record and the 1985 Plaza Accord intervention show we can. Academic research shows the same. Just as we manage interest rates, so too we can manage exchange rates.
Currency markets are speculative and respond to policy signals. The Treasury and the Federal Reserve must take immediate action with their international partners. The upcoming G7 summit provides an appropriate moment to do so.
Beyond intervention today, we must avoid a repeat of today's over-valued dollar, just as today's problems are a repeat of mistakes made in the 1980s. The dollar must be a permanent focus of policy, and the Treasury and the Federal Reserve must be made explicitly accountable.
And every trade agreement must include strong specific language that rules out sudden currency depreciations that more than nullify the benefits of any tariff reductions. We've been NAFTA-ed once, and that is more than enough.
The Senate Banking Committee has a vital oversight role to play in ensuring that the Treasury and the Federal Reserve live up to these obligations.
I thank you for the opportunity to testify before you, and I will be happy to answer any questions you may have.
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