House Small Business Committee Chairman Don Manzullo (R-IL) today challenged Federal Reserve Board Chairman Alan Greenspanâ€™s recent statement that a revaluation of Chinaâ€™s currency â€“ the yuan –would have little positive impact on the U.S. manufacturing sector.
Manzullo, a House leader on efforts to force China to stop manipulating its currency to the detriment of U.S. manufacturers, sent a letter to Chairman Greenspan today taking issue with Greenspanâ€™s June 23 testimony in front of the Senate Finance Committee. During the testimony, Chairman Greenspan said, â€œSome observers mistakenly believe that a marked increase in the exchange value of (Chinaâ€™s currency) relative to the U.S. dollar would significantly increase manufacturing activity and jobs in the United States. I am aware of no credible evidence that supports such a conclusion.â€�
In1994, China devalued its currency by about 30 percent and now pegs its value to the U.S. dollar. Economists estimate the yuan is currently up to 40 percent under value. This currency manipulation gives Chinese companies an artificial price advantage when selling into the United States and it costs U.S. companies more to sell in China.
In his letter to Chairman Greenspan, Manzullo states there is a â€œhost of credible evidence demonstrating that (increasing) the value of Chinaâ€™s currency would improve the state of manufacturing in the United States.â€� Manzullo pointed out that during the same hearing in which Chairman Greenspan testified, a manufacturer from Rhode Island representing the National Association of Manufacturers presented a comprehensive analysis of why a Chinese yuan revaluation upward would have a positive benefit on U.S. trade and our domestic manufacturing base.
Here is the Bloomberg story of the June 23 testimony:
Imposing trade sanctions on China would be misguided and put the future of the U.S. economy at risk, Federal Reserve Chairman Alan Greenspan told lawmakers who are considering such penalties.
Greenspan and Treasury Secretary John Snow, who testified to the Senate Finance Committee, faced persistent questioning from some legislators who said China’s trade policies, especially its currency regime, are unfair and illegal. Greenspan also cast doubt that a revaluation of China’s currency would be beneficial to U.S. companies and the economy.
“Any significant elevation of tariffs that substantially reduces our overall imports, by keeping out competitively priced goods, would materially lower our standard of living,” Greenspan said.
The Fed chairman said “few, if any” American jobs would be protected by a tariff on Chinese goods. U.S. workers displaced by trade with China should be compensated through unemployment insurance programs and retraining, he said.
Senators Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, introduced a bill earlier this year that would impose a 27.5 percent duty on all imports from China to compensate for what they say is the subsidy Chinese exporters receive because of an undervalued currency. Republican leaders promised to hold a vote on the bill this year.
“Getting China to play by the rules of the game is the free- trade position,” Schumer said. “If we don’t, if we dither, the fragile support for the free trade system around the globe is going to wither away.”
Greenspan and Snow said the Chinese recognize a revaluation of their currency would be helpful, and suggested they expect China to move soon.
“The sooner the Chinese, in their own self-interest, move to a more flexible currency regime, perhaps leading other Asian currencies to become more flexible as well, the better for all participants in the global trading system,” Greenspan said.