Panel I of a Hearing of the Senate Banking, Housing and Urban Affairs Committee - Measures to Enhance the Operation of the Fair Credit Reporting Act

Federal News Service

July 31, 2003 Thursday

HEADLINE: PANEL I OF A HEARING OF THE SENATE BANKING, HOUSING AND URBAN AFFAIRS COMMITTEE
 
SUBJECT: MEASURES TO ENHANCE THE OPERATION OF THE FAIR CREDIT REPORTING ACT
 
CHAIRED BY: SENATOR RICHARD SHELBY (R-AL)
 
LOCATION: 538 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: JOHN W. SNOW, SECRETARY, DEPARTMENT OF THE TREASURY

SEN. SHELBY: Virginia, Maryland, everybody. Senator Schumer, I don't know if you mine coal, but we are going --

SEN. CHARLES SCHUMER (D-NY): We don't have any coal in New York to my knowledge. We have a lot of it, but it's all imported from Kentucky and Utah and Alabama. Anyway, I want to thank you, Mr. Chairman. Once again you are on the money, so to speak, with an excellent hearing, and you are moving along this committee in a great way, and I think we all appreciate it.

And I want to thank you, Mr. Secretary, for being here. This is the first time you're here, and we all have a whole lot of questions. So I want to ask on an area which we have sent some correspondence to you, and that is the relationship of trade with China, particularly the value of the Chinese currency, the yuan, and the impact on our job base.

As you know, two weeks ago Senators Dole and Lindsey Graham, myself and Senator Bayh wrote to you on this subject. I know you understand our concern. And today we are sending a bipartisan letter, both bipartisan and bicameral, to the president, urging quick action on this matter. Senator Dole has joined me in this, along with Senator Bayh, Senator Stabenow and Senator Bunning on this committee, as well as Congressman Manzullo and many others in the House.

And you seem to be taking a little more of a stand on this issue lately. But we still haven't heard a firm position from you or Treasury on whether China's currency is in fact undervalued. So I want to ask you the question directly: Do you and does Treasury believe that presently the Chinese currency, the yuan, is undervalued vis-a-vis the dollar?

SEC. SNOW: Senator, that is the subject of the review under the '88 Trade Act that we are engaged in looking at right now. I don't want to make a premature judgment on that. Certainly some economists who study the matter have reached that conclusion. And others say it's more of an open question. I frankly don't have a firm view on that at this point.

What I do have a firm view on though is that we should encourage the Japanese, the Chinese I mean—and I'll return to Japan in a second—we should encourage them in the reports that they are looking at widening the band on the yuan.

SEN. SCHUMER: But why shouldn't they just let the currency float? Let me just—first, I have to tell you I'm disappointed that you don't have a view, and that we are going to wait until a report comes out in October. Every day every one of us hear from our states of jobs, manufacturing and otherwise, going to China. Some of that is the basis—you know, is on the basis of free trade. But much of it, a good deal of it, is because the Chinese have unfairly pegged their currency to the dollar at too low a rate. And not just that some economists, but most economists I've talked to, and I've talked to a wide range—Democrat, Republican, liberal, conservative—believe that it is undervalued. The only question is how much. Is it 15 percent? Is it 40 percent? And I don't think as we lose jobs every day that this is—it's—I don't think we can afford to wait till October, and then the report will come out, and then you will study it, and it may not be until next year that Treasury even begins to take a position on this key issue.

And I have to tell you, as somebody who has been a free trader—I lost the AFL-CIO endorsement when I was in the House for awhile—free trade is losing ground in this Congress like a sinking stone. When you hear that Intel, IBM and Goldman Sachs plan to move high-end jobs to China and India, what's going to be left here? Restaurants? I mean, the manufacturing jobs are going, the agricultural jobs are going. I have to say, in all due respect, I don't think it's adequate for you to wait until October. And at least myself and others are going to push the president and the Treasury not only to come out with a position—I'm not—this is even before a position. But to be so coy with the Chinese—you know, the Chinese want to be included in the family of nations when it benefits them, and they don't live up to their responsibilities. This is not a small little country that needs to peg something to the dollar. Their currency should float like everybody's. What is the theoretical objection to having their currency float? And determining—even if you don't know if it's undervalued or not, the best way to do that is to let it float. And what are we doing to get the Chinese to do that?

SEC. SNOW: Well, senator, as I indicated to you earlier, we are encouraged by the reports that are coming out of China that they are looking at employing a more flexible exchange rate regime. They're to be encouraged in that.

But this is an extraordinarily complex matter. You probably are aware of the banking problems in the Chinese economy. You are probably aware of concerns about overvalued assets on the books of the banks. You're probably aware, Senator, of the capital controls that are in place.

And you're probably aware of concerns that many economists have and many China hands have that if you moved too rapidly in the direction of freely floating exchange rates with the removal of capital controls—which, of course, go hand in hand, as you know—that you would have a huge exodus of Huan into Euros and into dollars. And, of course, you know that that would drive up the value of the dollar versus the Huan and drive up the value of the euro versus the huan.

So this is a very complex question. I think we should encourage them to move in the direction they seem to be going. I think we should also have some appreciation and understanding of the real complexity of this matter and the need to approach it in a really thoughtful manner.

SEN. SCHUMER: Well, I have to tell you, sir, to the tens of thousands, hundreds of thousands, millions of Americans who have lost jobs and who we—you ask us to say, "Well, free trade benefits everybody." To say, "Let's be patient" when the Huan has been pegged at an artificial rate for a long time isn't much consolation.

Furthermore, there's probably manipulation here. You're saying undoing the manipulation may have bad consequences. But let me just quote from you and Chairman Greenspan. He said, "If China's exchange rate is significantly undervalued, and indeed a reflection of that would be their"—China's—"accumulation of dollar assets, the accumulation of dollar assets will expand their money supply to the point that it will create problems in monetary policy and it will be to their interest to change."

So that sort of undercuts the argument that you're making. He basically says that it's in their interest to even have some of the consequences. Now, maybe you can't do it all at once. But when do we expect Treasury action on this?

SEC. SNOW: Senator --

SEN. SCHUMER: The report's coming out in October. Do you think we have manipulation of the currency by China?

SEC. SNOW: Senator, you read the quote from Chairman Greenspan. And it began with "If."

SEN. SCHUMER: Yeah. Well, what's your view?

SEC. SNOW: The "if" is what needs to be understood better. That's the question.

SEN. SCHUMER: Well, what's your view?

SEC. SNOW: And the chairman was very careful in the words he chose there.

SEN. SCHUMER: He's always careful. What is your view? Is China manipulating its currency?

SEC. SNOW: Well, I think if the chairman felt he knew the answer to that question, he would have used "if."

SEN. SCHUMER: But I would like to know your view.

SEC. SNOW: I have an "if" as well.

SEN. SCHUMER: Well, I don't think these answers are satisfactory, in all due respect, sir. We're going to lose not just jobs. You're going to lose—my guess is you're going to lose a free trade consensus in this Congress very, very rapidly. And this is a pro-economic, pro-free trade way to restore some of the imbalance, because this is an unfair part of the imbalance. And I don't think your patience with this, in all due respect, is shared by members on both sides of the aisle in this committee and elsewhere.

SEC. SNOW: Senator, when we report to you in October, which is only a couple of months away, we really want to know the facts. We want to give you a thoughtful and well-considered and analytically sound answer to the question. The question that the chairman aptly notes is an "if."

We've got to pay careful attention to this issue, though, of manufacturing and of the whole problem of currency manipulation, the problem of undervalued currencies, to the whole question of countries promoting their export sectors at the expense of the world trade system. It's not really in their interest to do so. No country has ever devalued itself to prosperity.

And the issues the chairman raised and the issues I've talked to him about in that same vein are important. They're critically important issues. And there is the potential for an imbalance in the whole trading system if countries build up excessively large reserves because they're suppressing the value of their currency.

So we're in full agreement. We recognize the issue. We want to come back and have a dialogue with you and with our friends in China on this question. And if, in fact, the Huan is being held at a considerably lower than market value, then it's not in their long-term interest and we want to have that dialogue with them.

I do think, though, we have to recognize that some of the loss of manufacturing is due to a variety of other things. I think you'd acknowledge that. There's been a long-term downward trend in manufacturing in the United States, 50 years. Part of that is due to rising productivity itself in the manufacturing sector. Part of it is due to the rise of technology.

There are a whole—a lot of it is due to domestic competition. The whole question of manufacturing and its role in our economy and where it's going and what can be done to assist it are serious issues that Secretary Evans is engaged in, that I'm engaged in, and that we hope to come back and put in better perspective for the Congress.

SEN. SCHUMER: Thank you, Mr. Chairman.