Durbin Meets with Teasury Secretary Nominee Henry Paulson to Discuss China's Currency Manipulation

DURBIN MEETS WITH TREASURY SECRETARY NOMINEE HENRY PAULSON TO DISCUSS CHINA'S CURRENCY MANIPULATION

Tuesday, June 13, 2006

[WASHINGTON, DC] - U.S. Senator Dick Durbin (D-IL) today met with Treasury Secretary Nominee, Henry Paulson, to discuss the need to protect Illinois manufacturing jobs by addressing China's currency manipulation. In the meeting, Durbin and Paulson discussed a number of approaches to the problem including bipartisan legislation that would penalize the Chinese for its undervaluation of the yuan. This manipulation of China's currency has played a major role in the loss of 2.6 million U.S. manufacturing jobs since March 2001. Paulson has extensive experience working with China, having made over 70 trips to the country in the past 15 years.

"One of every six manufacturing jobs in Illinois is tied to exports, and when a major trading partner like China devalues its currency to undercut our products on the world market, our government should act," said Durbin. "The current situation is killing manufacturing jobs in the U.S., including thousands of jobs in Illinois. Today I made it clear to Mr. Paulson that we must do more to address China's currency manipulation so that businesses in Illinois, and throughout the country, can compete fairly in the world market."

Durbin told Paulson that the U.S. should send an unmistakable signal to the Chinese - stop the market manipulation or pay the price with your trading partners. One measure now under consideration would apply a "symmetrical" tariff of 27.5% in line with China's currency undervaluation that would be applied across the board to products from China. It would allow the President to remove sanctions once he certifies that China has moved to a market-based currency. The tariffs would commence after a grace period of 180 days to ensure that Treasury officials have adequate time to work with the Chinese to institute reforms.

Durbin said the yuan -- sometimes known as renminbi -- has been tightly pegged to the U.S. dollar since 1994 (approximately 8.28 yuan to the dollar). During that period of time, China's economy has grown dramatically, averaging over 8% growth per year. If China's currency freely floated in the market, as is the case with virtually all major world currencies, it would have appreciated substantially reflecting this economic strength. However, it has remained at the same value, and many economists estimate that the yuan is now undervalued as much as 15 to 40 percent.

The undervaluation of the yuan makes China's exports relatively less expensive for foreigners, and it makes foreign products relatively more expensive for Chinese consumers and discourages imports to that country. The practice of "currency manipulation" to gain a trade or competitive advantage violates World Trade Organization and International Monetary Fund agreements, of which China is now a party.

As the United States largest export industry, manufacturing has felt the impact of the yuan's undervaluation most dramatically. Illinois has lost over 11,000 manufacturing jobs since April of this year and now has only 681,100 manufacturing jobs statewide.

Paulson, a resident of Illinois, has been the Goldman Sachs' Chairman and CEO since 1994. He joined the firm's Chicago office in 1974 and was elected a partner eight years later, rising through the ranks as head of the Chicago office and partner-in-charge of the Midwest investment banking region. Paulson also briefly served at the Pentagon as Assistant Secretary of Defense during the Vietnam war and as a member of the White House Domestic Council under President Nixon. Mr. Paulson is currently Chairman of the Board of the Nature Conservancy and he and his wife Wendy are active on environmental issues.

http://durbin.senate.gov/record.cfm?id=256933&&