Hearing of the House Ways and Means Committee: U.S.-China Economic Relations and China's Role in the World Economy

HEADLINE: HEARING OF THE HOUSE WAYS AND MEANS COMMITTEE SUBJECT: U.S.-CHINA ECONOMIC RELATIONS AND CHINA'S ROLE IN THE WORLD ECONOMY

CHAIRED BY: REPRESENTATIVE BILL THOMAS (R-CA)

WITNESSES PANEL I:

KRISTIN J. FORBES, PH.D. MEMBER, PRESIDENT'S COUNCIL OF ECONOMIC ADVISERS; CHARLES W. FREEMAN III, ASSISTANT UNITED STATES TRADE REPRESENTATIVE OF CHINA AFFAIRS, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE; DOUGLAS HOLTZ-EAKIN, PH.D., DIRECTOR, CONGRESSIONAL BUDGET OFFICE;

PANEL II: RICHARD WILKEY, PRESIDENT, FISHER-BARTON COMPANY ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS; JAY BERMAN, CHIEF EXECUTIVE OFFICER EMERITUS, INTERNATIONAL FEDERATION OF PHONOGRAM INDUSTRIES ON BEHALF OF THE RECORDING INDUSTRY ASSOCIATION OF AMERICA;

ROBERT S. WEIL, II, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, WEIL BROTHERS COTTON COMPANY, AND VICE PRESIDENT, NATIONAL COTTON COUNCIL;

MYRON BRILLIANT, VICE PRESIDENT FOR EAST ASIA, U.S. CHAMBER OF COMMERCE; ALEX GREGORY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, YKK CORPORATION OF AMERICA; ROBERT STEVENSON, CHIEF EXECUTIVE OFFICER, EASTMAN MACHINE COMPANY;

DAVID SPENCE, MANAGING DIRECTOR FOR REGULATORY AFFAIRS, LEGAL DEPARTMENT, FEDERAL EXPRESS CORPORATION

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Chairman Thomas, Ranking Member Rangel, and my fellow colleagues, as the author of legislation to repeal Permanent Normal Trade Relations with China which has the support of 52 Democrats and 18 Republicans, thank you for giving me the opportunity to testify today.

Mr. Chairman, as I'm sure you know, Albert Einstein once said that "The definition of insanity is doing the same thing over and over again and expecting different results".

If that is true, then certainly there can be only one way to describe our current unfettered free trade policy: insane.

The simple truth of the matter is that our current trade policy has failed. One of the major reasons why the middle class is shrinking, poverty is increasing, the gap between the rich and poor is growing wider is due to our disastrous unfettered free trade policy.

But, I think it is safe to say that if I was a CEO who was making 500 times what the average worker earns, and tens of millions of dollars in total compensation each and every year, I would tell you that our trade policy has been a success. It has enabled me to throw American workers out on the street, hire workers in China for 20 cents an hour with no benefits to make my products, and ship those goods back into the United States tariff free, or for virtually tariff free. And, that's why corporate America spent more than $113 million to persuade Congress to grant PNTR to China despite Harris polling showing 79% opposition from the U.S. public. And, that's why corporate America still supports PNTR today.

But, for the middle class, Normal Trade Relations with China has been a different story. From 1989 until 2004, we have lost at least 1.5 million jobs as a result of our trade relationship with China. PNTR has also had a very negative impact on wage growth. Real wages for the overwhelming majority of U.S. workers are now lower than they were two years ago. And, according to Richard B. Freeman, a Harvard economist, who was quoted in a recent New York Times article said that millions of skilled Chinese, Indian and other Asian workers entering the global labor market will increasingly pull down American wages. "Globalization is going to make it harder for American workers to have the wage increases and the benefits that we might have expected," he said.

Mr. Chairman, in 2004, we experienced a record breaking $617 billion trade deficit. The U.S. trade deficit with China alone was $162 billion, the largest-ever bilateral trade deficit with any country and roughly equal to our total trade deficit only six years ago. In 1990, our trade deficit with China was only $11.5 billion. Incredibly, the trade deficit with China has increased by 29 percent over the last year alone and almost 50 percent since the passage of PNTR. Very few experts in this area doubt that the trade deficit will continue to escalate in the years ahead, and in fact, we are headed towards a $700 billion plus trade deficit this year.

According to the very conservative National Association of Manufacturers, if we continue our current policy, our trade deficit with China will more than double to over $330 billion in 2008.

In industry after industry corporate America is shipping our manufacturing plants, our good paying jobs, to China where desperate people are forced to work for wages as low as 20 cents an hour. Anyone who went Christmas shopping this year knows that more and more products on the shelves are made in China: toys, bicycles, computers, televisions, shoes and sneakers, all kinds of clothing and hats, telephones, furniture, auto parts and even artificial Christmas decorations. Ironically, the little American flags that members of Congress wave around are often made in China, as over 100 million of them have been made there since 2001.

In the last 4 years the United States has lost 2.7 million manufacturing jobs, over 16 percent of our entire manufacturing sector. In my small state of Vermont we have lost 20 percent of our manufacturing sector during that period. PNTR with China, and our disastrous trade policies in general, are one of the key reasons for that.

As bad as that is, we should be very aware that PNTR with China is not only leading to the destruction of traditional manufacturing and blue collar jobs. It is leading to the loss of millions of high-tech, information technology jobs as well. Not only is China rapidly becoming the manufacturing center of the world, it is quickly becoming the information technology hub as well. These are the jobs, we have been told for years, that our children would be inheriting and are being educated for.

According to a recent study by Gartner, 30% of our information technology jobs are in danger of being outsourced overseas during the next decade.

Andy Grove, the founder of Intel, predicted last year that the United States will lose the bulk of its information technology jobs to China and India over the next decade. John Chambers, the CEO of Cisco, was typical of many high-tech leaders when he said: "China will become the IT center of the world …. What we're trying to do is outline an entire strategy of becoming a Chinese company."

Mr. Chairman, if our manufacturing sector continues to collapse, and we lose the bulk of our IT jobs to China and India in the next decade, what jobs will be there for our kids? Good question. Let's get an answer from the Bureau of Labor Statistics "Jobs of the Future". According to this report 7 out of the top ten industries that will experience the most job growth are low wage, low skill, low benefit jobs: nursing aides, orderlies and attendants; waiters and waitresses; janitors and cleaners; cashiers; food preparers and fast food servers; customer service representatives; and retail salespersons.

What jobs does the BLS study tell us will be lost in the next decade? The study says that we will lose 18 percent of our aerospace manufacturing jobs, 12 percent of our computer and electronic production workers, 17 percent of our chemical manufacturing jobs, 20 percent of our steel workers, 31 percent of our textile mill jobs, and 69 percent of our apparel manufacturing jobs.

And, Mr. Chairman, we must also not forget, that at the same time that American companies are throwing workers out on the street and shipping our decent-paying jobs to China, they are receiving hundreds of billions of dollars in corporate welfare and tax breaks, and our actually bragging about shipping our jobs overseas.

Jeff Immelt of General Electric says: "When I am talking to GE managers, I talk China, China, China, China, China. You need to be there. …. I am a nut on China. Outsourcing from China is going to grow to $5 billion."

Thomas Donahue, the CEO of the U.S. Chamber of Commerce "urges" American companies to send jobs overseas.

Bill Gates, the wealthiest man in America tells us that Communist authoritarian China has created, "a brand new form of capitalism, and as a consumer it's the best thing that ever happened."

Mr. Chairman in that context, what we have to understand is that our trade policy has failed during Administration after Administration, Congress after Congress, controlled by Republicans and Democrats. I would respectfully assert that we have got to rethink our trade policy and that is why I hope you will join me in supporting my legislation to repeal PNTR with China.

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