February 02, 2007



As part of his continuing months-long effort to ensure that American businesses and workers can compete successfully in the global marketplace, Chairman Dodd invited U.S. Secretary Henry Paulson to the Senate Committee on Banking, Housing and Urban Affairs discuss the Treasury Department’s practices and priorities. This was Sec. Paulson’s first testimony before Congress since he was sworn in last July. A longtime advocate for American job growth and retention, Senator Dodd emphasized: · Administration’s Lack of Progress in Meeting the Economic Needs of Working Families: How is the national government doing in securing opportunity and prosperity for working Americans? Record deficits mean that today we are under-investing in our most important priorities – health care, schools, infrastructure and targeted tax relief. · A Steep and Dangerous Decline in Domestic Manufacturing: More than 3 million manufacturing jobs have been lost since 2001, a third in defense-related industries. We are losing the capacity to produce items of vital importance to our national security. · The Need to Stop China’s Currency Manipulation: The U.S Treasury Department should encourage China to properly value the yuan in order to create a level playing field for all global businesses and workers to compete. “This is not about Republicans and Democrats,” said Dodd. “We meet our constituents and they are livid. They are livid, Mr. Secretary. The Congress isn’t going to wait for us to get some sort of vague definition of how this is progressing when they watch 3 million manufacturing jobs leave this country. When they watch China investing heavily in armaments and not investing in its own people as shown by its 10-fold increase in defense spending. You’re going to get blown by on this problem if we don’t get a better handle on this. That is why this is important. The moment is now to start to think this thing through.” The full text of Sen. Dodd’s opening remarks and the text of the letter he sent to Sec. Paulson during his December trip to China are below: Opening Statement of Senator Chris Dodd, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs Exchange Rate Hearing with Secretary Paulson The Committee meets this morning to consider the Treasury Department’s Report on the International Economic and Exchange Rate Policy and the first meeting of the US-China Strategic Economic Dialogue. We are pleased to have our nation’s 74th Treasury Secretary Hank Paulson as our first witness. Mr. Secretary, welcome. In each of the past 5 years, this Committee, pursuant to statute, has received exchange rate reports and taken testimony from the Treasury Secretary. I want to take a moment to commend Senator Shelby and former Senator Sarbanes for those hearings and for their excellent oversight on the issue of exchange rates. This is a critical issue for millions of Americans who run businesses and work at jobs that depend on a level playing field in the global marketplace. This is the only report to the Congress that addresses international economics, exchange rate policy, and currency manipulation, and that requires testimony, if requested, from the Treasury Secretary to Congress. As America’s economic fortunes become more entwined with the global marketplace, I think that this report serves a vital role in allowing this Committee to discharge its oversight responsibility. More importantly, it allows us to have a frank, candid and hopefully constructive conversation about how we can foster freer, fairer, more transparent, and more dynamic markets where American businesses and workers can compete successfully. That conversation must begin with an assessment of how our national government is doing in securing opportunity and prosperity for working Americans. The record, in my view, leaves much to be desired. Policies put in place well before Secretary Paulson’s confirmation, have helped to turn record surpluses into record deficits. These deficits mean that today we are under-investing in our most important priorities – like health care, schools, our nation’s infrastructure and targeted tax relief for businesses and working families. While the economy has produced great results for some, and while we can all be encouraged by some recent positive signs in the economy, the fact remains that the median family income has declined by nearly $1,300 over the course over the past few years. More than 3 million manufacturing jobs have been lost since 2001—the steepest and most prolonged loss since the Great Depression. About one million of these jobs have been in critical defense-related industries. This is the first economic recovery that we have ever seen in which the manufacturing jobs that were lost have not come back. In a sense, for millions of Americans, the recession has not ended, but goes on and on. In addition to this historic dislocation of America’s manufacturing base, we have also outsourced the capacity to produce items of vital importance to our national security. To take one example, every smart bomb is guided by a special kind of magnet. These magnets used to be produced in two plants in Indiana. Today, these magnets are manufactured in China. What would be the consequences if these essential items ceased flowing to our military? The mere question supports what I believe to be an unmistakable and inescapable fact: that significant changes are urgently needed to adequately secure America’s future – both economically and militarily. One such change – namely exchange rate policy – is the subject of today’s hearing. If the global marketplace is going to be truly free and fair, then currencies must be equally subject to the discipline of that marketplace. China’s continued resistance to allow its currency to move to where the market would value it has had a distorting effect on global markets, and a detrimental effect on U.S. companies and workers. I have already spoken about the loss of manufacturing jobs. China’s currency – which credible analysts say is devalued by anywhere from 15 to 40 percent – is not the sole cause of these job losses. But many experts say it is a very significant cause. Likewise, it is a significant contribution to our nation’s record trade deficit. Right now that deficit is projected to be over $750 billion for 2006. Nearly one-third of that deficit – over $230 billion – consists of the U.S. bilateral trade deficit with China. The Treasury’s International Economic and Exchange Rate Report requires the Administration to examine whether any of our trading partners are manipulating their currency to gain an unfair trade advantage. Previous administrations, including that of former President George H. Bush, have found several countries to be manipulating their currency under the rules of the report, including China. Many leading economic experts have said for some time that China and other Asian countries are manipulating their currency to gain an unfair trade advantage. When he was in China, as part of the delegation led by Secretary Paulson, Federal Reserve Chairman Bernanke talked about the distortions that result from an: “effective subsidy that an undervalued currency provides for Chinese firms that focus on exporting.” When the Administration’s exchange rate report was released, Senator Shelby and I issued a joint statement expressing our disappointment that the report failed to recognize what is obvious to most: that China manipulates its currency. As I said a moment ago, exchange rate policy between the U.S. and China, as well as other countries, is but one of many challenges that our nation faces in order to secure a prosperous future for our people. But it is a vital challenge. It is critically important that we have a level playing field in the global economy. One of the issues that Treasury Secretary Paulson has made a priority is the importance of ensuring the competitiveness of U.S. capital markets in the global marketplace. I strongly support the need to ensure a level playing field for U.S. companies. We also need to make sure that we have a level playing field for U.S. companies when they compete against China and other countries in Asia. With a level playing field, I believe the American worker and the American entrepreneurial spirit can compete with anyone in the world. I want to thank the Secretary for testifying this morning. I believe that this is not only his first appearance before the Congress since returning from China, but it is also his first testimony to Congress since being confirmed. It is especially fitting that Secretary Paulson’s first hearing is on the Treasury Department’s Report on International Economic and Exchange Rate Policy and the first meeting of the US-China Strategic Economic Dialogue. In his previous career at Goldman-Sachs, Secretary Paulson worked extensively with Chinese officials. Secretary Paulson has tremendous experience and expertise to draw from as he leads the Administration in its negotiations with the Chinese government. These skills will be needed if the Administration is to achieve better results than it has so far. Given his impressive experience and ability, I believe the Secretary is uniquely qualified to help create a global marketplace where Americans’ work ethic and ingenuity will win the day. Mr. Secretary, I am very pleased that you have taken the time to come before the Committee this morning and I look forward to hearing your testimony. I am also very pleased to have a second panel of witnesses to share their knowledge and wisdom about this critical national issue. December 14, 2006 The Honorable Henry M. Paulson Secretary U.S. Department of the Treasury 1500 Pennsylvania Avenue, NW Washington, D.C. 20220 Dear Secretary Paulson, During your trip to the People’s Republic of China, we ask you to make currency reform a top priority on your agenda. We also request that you continue to press the very important issue of increasing market access for American companies, including the financial services sector. Greater market access, including nondiscriminatory treatment of American commercial companies in China, accompanied with regulatory and procedural transparency will provide mutual benefit for both nations. For far too long, China has manipulated their currency which has resulted in China receiving a tremendous unfair advantage in trade. Recently, it was reported that in October, the U.S. ran a trade deficit with China of over $24 billion, which accounted for over 40 percent of our nation’s entire trade deficit. This bilateral imbalance was far greater than any other country in the world by more than $16 billion, a factor of 3 to 1. The trade deficit with China over the last 12 months has reached $225 billion. These monthly deficits in our trade and current account relationships have risen to unprecedented levels. Last year, the American economy ran a record $791 billion current account deficit. Our most recent data shows that we ran a $218 billion current account deficit in the second quarter of this year – an annual pace of $874 billion, which is over 6.6 percent of our Gross Domestic Product. In addition to these macro-statistics, there is the real harm that has been done to each of the three million families who have lost a job in the manufacturing sector over the past five years. Many of these and other jobs are being lost, because American companies and workers are being denied a chance to compete in a fair and level playing field. Mr. Secretary, we agree with the long-term goal of China floating their currency. But we cannot continue to wait for this longer-term goal and suffer the consequences of insignificant short-term action. Numerous experts have stated that the yuan is currently undervalued by between 15 and 40 percent. We hope that your dialogue with the Chinese addresses this extremely serious problem. Finally, while we have heard from both of your predecessors, Secretaries Snow and O’Neill, on the Treasury’s Exchange Rate Report, we have not yet received the most recent report, which we urge you to file immediately. We invite you to testify before the Senate Banking, Housing and Urban Affairs Committee on this updated report and the results of your trip early in the new Congress. Sincerely, Christopher J. Dodd Richard C. Shelby