Response from Sen. Warner on my concerns about China

Following is a response  from Senator John Warner (R-VA) to my argument that we shouldn’t back down from a trade war with China:
            Thank you for contacting me to share your concerns over U.S.-China relations. I appreciate your thoughtful inquiry.

            As you are aware, in this new world economy, the United States faces China as its greatest economic competitor for years to come. China has become a global economic power with a $1.3 trillion economy that grows at 9 percent rate annually. In comparison, the long-term annual growth rate for the U.S. economy runs between 2 and 5 percent. Indeed, the Chinese economy is forcing changes in how the world does business, and our country is not immune to these changes. We will have to develop ways and opportunities of adapting to compete in this changing global marketplace.

            The United States finds itself directly in the path of China’s economic growth and all of its ramifications. We are seeing our U.S. markets being flooded with inexpensive goods produced by Chinese labors who are paid minimally and work in deplorable conditions not tolerated in our country. America cannot afford to stand by and allow one country to completely dominate the world economy through unfair trade practices. With a burgeoning U.S. trade deficit with China, which soared to $233 billion in 2006, the time has come for our two countries to find a way to rebalance our trading relationship; or else we will face serious disruptions in our economy.

            With respect to China’s undervalued currency, from 1994 until July 2005, China maintained a policy of pegging its currency (the yuan) to the U.S. dollar at an exchange rate of approximately 8.28 yuan to the dollar. In July 2005, the Chinese government modified its currency policy by making the yuan’s exchange rate adjustable based on market supply and demand with reference to exchange rate movements of currencies in a basket. Since July 2005, China has allowed the yuan to appreciate steadily but at a slow rate. Specifically, from July 21, 2005, to June 11, 2007, the dollar-yuan exchange rate went from 8.11 to 7.57, an appreciation of about 6.7%. Some members of Congress have expressed dissatisfaction with the slow pace of China’s currency reforms and thus introduced legislation in the 110th Congress to address the issue.

            In the Senate, on June 13, 2007, Senator Max Baucus (D-MT) introduced S. 1607, the Currency Exchange Rate Oversight Reform Act of 2007. This legislation would require the Department of Treasury on semi-annual basis to identify currencies that are fundamentally misaligned, which is defined as a significant and sustained undervaluation of the prevailing exchange rate, and to designate such currencies for priority action under certain circumstances. Specifically, it would establish a series of actions to be taken to remedy undervalued currencies starting with consultation with the offending nation and its trading partners. If negotiations do not produce policy changes, it would call for increasingly severe punishment, including legal action through the World Trade Organization. The bill also would permit the Department of Commerce to take fundamental misalignment into consideration in antidumping investigations involving the country in question. On July 26, 2007, the Senate Finance Committee approved S. 1607 by a vote of 20 to 1.

            On June 21, 2007, Senator Christopher Dodd (D-CT) introduced a similar bill S. 1677, Currency Reform and Financial Markets Access Act of 2007. While this legislation would retain the current framework of for Treasury investigation of foreign currency practices, it would restrict the Treasury’s discretion in labeling countries currency manipulators. On August 1, 2007, the Senate Banking Committee approved the bill by a vote of 17 to 4. Further consideration of these bills by the full Senate is pending.

            Please be assured that I certainly understand the seriousness of the situation at hand and will certainly keep your views in mind as my colleagues and I in the Senate seek effective solutions to our trade imbalance with China.

            Again, thank you for sharing your views with me.

            With kind regards, I am


                                                            John Warner
                                                            United States Senator


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