Statement of Charles E. Schumer U.S. Senate Committee on Banking, Housing, and Urban Affairs "The Treasury Department's Report to Congress on Internat

Statement of Charles E. Schumer U.S. Senate Committee on Banking, Housing, and Urban Affairs "The Treasury Department's Report to Congress on International Economic and Exchange Rate Policy (IEERP) and the U.S.-China Strategic Economic Dialogue"

Secretary Paulson, thank you for coming here this morning to talk about the foreign exchange report. I am currently chairing my first Joint Economic Committee hearing on the economy and the middle class, issues that I know you care about deeply, but I wanted to make a very brief statement about China's currency practices.

Although the pace of currency appreciation has quickened slightly, nearly all experts still agree that the Chinese yuan remains significantly undervalued; that this undervaluation is the result of deliberate intervention by the Chinese government in world currency markets; and that this policy gives Chinese products a tremendous advantage in the United States market. Yet the Treasury Department has repeatedly used a technical and legalistic dodge to determine that China does not manipulate its currency. You and I have talked about that, and you know that I disagree with your position because if it walks like a duck and quacks like a duck, it's a duck.

But let's leave aside for a moment what word we want to use to describe what the Chinese are doing, and focus instead on its effects. Federal Chairman Bernanke has said that what the Chinese are doing with their currency amounts to an export subsidy. I think there is an emerging consensus that this is simply a fact, regardless of what official government reports may say, and regardless of how Administration officials might parse their words to dance around the real issues.

I know that you are keeping your commitment to focus on this issue to the best of your ability, and that these high-level dialogues have begun and will continue. But if we measured progress in this town by the number of words spoken and the number of meetings taken, every major problem would have been solved long ago. The simple fact is, Mr. Secretary, the Chinese could do more and should do more, and we have not been pushing them hard enough. We need to push them harder, even if that means ruffling a few feathers. The American workforce is counting on us.

Last Congress, Senator Graham and I ruffled a few feathers with our bill, which we set aside at the very end of the Congressional session because we wanted to work with Senators Baucus and Grassley - the Chairman and Ranking Member of the Finance Committee, albeit in reverse order than a few months ago - on a new currency bill that was WTO compliant. I need for you to impress on your Chinese counterparts that if the pace of progress does not pick up, and more market reforms are not accomplished in the currency arena, then bipartisan legislation will pass the Congress that will put the President in an uncomfortable position.

Last year, Senator Graham and I were clear that we never intended for our bill to become law. It was a shot across the bow. But now the possibility for legislation in the 110th Congress is real, because the number of people who will vote for strong legislation exceeds the number of people who would have voted for an explicit tariff. I hope that you recognize that reality and that you will communicate it forcefully.

Finally, Mr. Secretary, since you are the principal economic spokesperson for the Administration, I want to make one point regarding the challenges facing middle-class Americans, since that is the primary focus of my hearing as Chairman of the Joint Economic Committee. This morning, Bob Rubin, Larry Summers, and Alan Blinder are all talking about the economy and the challenges facing the middle class. And just as he has for the past several years, the President is again making it clear through speeches the last couple of days that his number one economic priority is making his tax cuts permanent.

Now, I've heard you talk about how you recognize that today's economic growth is not being shared by all income groups, and I commend you for saying it publicly when it appears that so many members of the Administration have given that issue short shrift. But you and I have been friends a long time, and you are a reasonable person, a common-sense person, and I simply refuse to believe that you agree, in your gut, that the number one thing we can do right now to help struggling middle-class families is to pass a tax cut that won't take effect for four years. I urge you to get the senior members of this Administration to think more broadly about policies that can help the middle class in both the short run and the long run.

http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Testimony&TestimonyID=1395&HearingID=247