Julia Lawless, Antonia Ferrier, 202.224.4515
Hatch Presses Administration to Take Stand on Currency Bill
Utah Senator Says, “The Administration promised to usher in an era of change, but failed to change the way the U.S. deals with the China currency issue.”
WASHINGTON - As the Senate begins debate on the Currency Exchange Rate Oversight Reform Act (S. 1619), U.S Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, outlined in a speech on the Senate floor today the need to address currency manipulation that is hurting American businesses, but said the Administration has done little to address the situation and said America must focus more broadly on other trade imbalances.
“We have had large and persistent bilateral trade deficits with China, and those deficits continue. We have relied on China’s massive excess savings to finance our growing debt, and we have worsened that reliance given the debt-fueled spending spree of the current President. China’s dollar-denominated reserve holdings, which have grown for many years, have ballooned from around $1.9 trillion when President Obama took office to over $3 trillion according to some recent estimates, a 50 percent increase,” Hatch said today. “The Administration promised to usher in an era of change, but failed to change the way the U.S. deals with the China currency issue.”
“My fear is that the administration’s overreliance on overseas funding — in particular from China — to finance their exploding deficits is preventing the President and his officers from acting on behalf of the competitive, but struggling, American workforce. It is well past time for the Administration to recognize the negative consequences of China’s manipulation for American workers and manufacturers, and for global stability,” Hatch continued.
Last week, Hatch sent a letter to Treasury Secretary Geithner and U.S. Trade Representative Ron Kirk asking for the Administration’s views on the legislation before the Senate begins debate on the legislation.
“Again, I agree that we need to address the issue of currency manipulation and our sustained and large trade deficits with China. However, let us be clear that dealing with issues related to China involves only one bilateral trade relationship. The trade and current account problems facing the United States, and the global financial, trade, and economic imbalances that everyone faces are not solved by addressing this one trading relationship,” continued Hatch. “Our trade imbalances are not with China alone. Rather, as part of the problem of saving too little, the U.S. has multi-lateral trade imbalances which require more action than focusing solely on one bilateral relationship. According to recent data from the United States International Trade Commission, the U.S. has trade deficits with nearly 100 countries. The U.S. saves too little, and that problem will not be solved solely by passing the bill before us.”
Below is the text of Hatch’s full speech delivered on the Senate floor this afternoon:
Mr. President, we begin debate today on the important issue of exchange rate misalignment. It is an important debate, though I seriously question its timing.
Let’s step back for a moment. At the end of last month, the U.S. Senate approved legislation renewing and expanding Trade Adjustment Assistance. We need to be clear about what this program is — a big government spending program of dubious value, but one that is important to President Obama’s union allies.
Not surprisingly, given the heft that labor unions wield in the liberal political coalition, this government spending program is President Obama’s top trade priority; so much so that he was even willing to abandon our allies in Colombia, Panama and South Korea unless he secured this additional spending. To get more government spending for Big Labor, the President was willing to hold up the free trade agreements with Colombia, Panama, and South Korea that everyone knows will grow this economy and create jobs.
Americans need to remember this episode when they hear the President talk about his commitment to job creation. Put aside all the talk, and it is clear that when the rubber hits the road the President will prioritize government spending over private sector job growth.
Still, because of the President’s insistence on this spending program, the TAA bill is very likely to pass the House and become law.
So here is my question. Given that we just debated a trade bill that we knew would likely become law, why was this currency bill not considered in that context? I can only conclude either that the Administration opposed the currency bill, and therefore asked that it not become part of TAA, or that consideration of this bill is merely a political exercise, with little expectation that it ever becomes law.
With millions of Americans out of work and the economy stagnant, the people of Utah, and all of America’s citizens deserve more than political grandstanding. Regarding the substance of the issue, the manipulation of currency values by major trading partners in order to gain unfair trade advantage represents a genuine threat to U.S. jobs and to rebalancing of the global financial and economic system. For many years, and continuing into the present, that threat is a reality.
There is virtually unanimous agreement among international analysts that there exists large-scale, prolonged, one-way intervention in exchange markets by some of our important trading partners in order to limit or preclude currency appreciation, primarily in China but also in some other economies.
There also seems to be little question that China manipulates its currency in order to subsidize its exports.
The bill before us seeks to address exchange rate misalignments specifically, and global imbalances generally, by sharpening the tools available to counter currency manipulation by a trading partner. Of course, any additional tools that we construct must be carefully crafted to align with all of our international trade agreements and global rules of trade.
The issue of China’s currency has been with us for far too many years. We have repeated discussions about how to address lack of appreciation of China’s currency, followed by diplomatic bilateral discussions, assurances of moves from China to allow appreciation, some modest subsequent appreciation while the political heat is on, and little change thereafter once the heat subsides.
This approach does not seem to be working. We have had large and persistent bilateral trade deficits with China, and those deficits continue. We have relied on China’s massive excess savings to finance our growing debt, and we have worsened that reliance given the debt-fueled spending spree of the current President. China’s dollar-denominated reserve holdings, which have grown for many years, have ballooned from around $1.9 trillion when President Obama took office to over $3 trillion according to some recent estimates, a 50 percent increase.
But currency misalignment by China is not the only source of global financial and economic imbalances. If the President looked in the mirror, he would see his own responsibility for global economic uncertainty. Our budget deficits have far exceeded $1 trillion for the past three fiscal years. For 2011, the deficit is expected to be around $1.3 trillion, which is an unsustainable 8.5 percent of GDP and the third-largest deficit in the past 65 years, exceeded only by the deficits in 2009 and 2010. Deficits of this magnitude have not been seen since the years surrounding World War II, when virtually the entire economy was being directed by the federal government. Given our budget deficits and the China currency issue, the important question is: What is being done?
Let’s look at what is being done with a bit of recent history for context. Back in 2008, then-candidate Obama wrote the following to textile organizations:
“The massive current account surpluses accumulated by China are directly related to its manipulation of its currency’s value. The result is not good for the United States, not good for the global economy, and likely to create problems in China itself.”
He went on to promise that, if elected, he would use all diplomatic means at his disposal to induce China to change its foreign exchange policies. He promised to beef up U.S. enforcement efforts against unfair trade practices.
Also, back in 2009, during the Treasury Secretary’s confirmation hearing before the Senate Finance Committee, now-Secretary Geithner stated that:
“President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency.”
Those are strong words. Yet once in office, the President and Secretary Geithner failed to follow up on those words with action. The Administration promised to usher in an era of change, but failed to change the way the U.S. deals with the China currency issue.
The Omnibus Trade and Competitiveness Act of 1988 requires that the Treasury Secretary report on exchange rate policies of major U.S. trading partners. Under the Act, Treasury must consider whether countries manipulate exchange rates for purposes of preventing balance of payments adjustments or gaining unfair trade advantage.
The evidence clearly seems to show that China’s currency policies amount to manipulation leading to an unfair advantage in international trade.
Candidate Obama agreed during his campaign.
Treasury Secretary Geithner agreed during his confirmation testimony.
Yet, as Treasury Secretary and as President, the two have refused to act.
Secretary Geithner has issued five foreign exchange reports, but has refused to label China as a country that manipulates its exchange rate for the purpose of gaining unfair competitive advantage in international trade. Let me repeat that, despite many bold claims about using all the tools at their disposal to counteract China’s trade policies, the Administration refuses to designate China’s policies as being consistent with currency manipulation for trade advantage.
The question that I and most of my colleagues from both sides of the aisle have is: Why?
Clearly, the Administration must recognize the consequences of China’s manipulation for American workers and manufacturers, and for the stability of the global financial and economic system. Why, then, is the Administration protecting China by refusing to designate it as a currency manipulator?
Under the Omnibus Trade and Competitiveness Act, once a country is so designated, there are no draconian actions required. The immediate repercussions are merely stepped-up monitoring and greater vigilance in dialogue. Those don’t seem to be things that would lead to currency or trade wars.
So, why doesn’t the Administration act?
After all, American jobs are at stake. American workers can compete with any workers in the world, but our workers should not have to compete against foreign firms that receive massive subsidies. If the President is as intent on focusing on job creation in America as his campaigning suggests, then why has he refused to take such a simple step as designating known, existing currency manipulation?
There is a severe mismatch here between political rhetoric and action.
My fear is that the administration’s overreliance on overseas funding — in particular from China — to finance their exploding deficits is preventing the President and his officers from acting on behalf of the competitive, but struggling, American workforce.
It is well past time for the Administration to recognize the negative consequences of China’s manipulation for American workers and manufacturers, and for global stability.
Even though there has been only tepid support, even on the Democratic side of the aisle, for the President’s much touted jobs plan, there is bipartisan agreement that Congress needs to take significant actions to address the massive jobs deficit this nation is facing. We face a national crisis in having unemployment persisting at over 9 percent, with elevated numbers of the unemployed suffering from long-term bouts of joblessness and with many American workers having become so discouraged that they have simply dropped out of the labor force.
According to statements by the Majority Leader of the Senate, a focus on jobs is precisely why we are considering the bill before us. According to one of those statements, the Majority Leader is reported as having said that “I don’t think there’s anything more important for a jobs measure than China trade.”
I’m starting to think that my friends on the other side of the aisle are like the gang that couldn’t shoot straight. The Majority Leader thinks that addressing China trade is essential to job creation. But based on its failure to use existing tools available to designate China as a currency manipulator, the Administration apparently disagrees or it would have long ago used its authority to make such a designation under the under the Omnibus Trade and Competitiveness Act and then acted on the problem.
The President’s focus seems to be elsewhere. He seems to think that at least as important for jobs as the issue of China trade identified by the Majority Leader is his so-called American Jobs Act. Advertisements by the Democratic National Committee and campaign speeches by the President since he announced it in a joint session of Congress early last month tell us quite clearly that we should “meet our responsibilities” and consider that Act “right away.”
Yet my friends on the other side of the aisle apparently believe that a political debate over China and its currency policies are more important for job creation than the President’s American Jobs Act.
If the President’s Act is, as advertised, so crucial for job creation in the face of our national unemployment crisis, why is Senate Democratic leadership delaying its consideration? Why not consider the legislation right away, as demanded by the President in his campaign speeches and Democratic National Committee advertisements?
We are told by the President that Americans who are out of work cannot wait until the next election for us to act boldly for job creation. So why are we not considering his American Jobs Act, unless my Democrat friends disagree with the President that the Act would be the most important job creator available to us today?
I suspect that they know that the $447 billion in new stimulus spending included in the President’s jobs bill, and the accompanying proposals to impose $1.5 trillion in new taxes on a sluggish economy, is economically counterproductive and a sure-fire political loser.
I must say that the President’s Jobs Act looks like more of the same debt-fueled stimulus spending, cloaked under the guise of “investment,” along with higher taxes, cloaked under the label “tax reform.”
While I may disagree on the particulars of the President’s proposal, I do not disagree with his premise that we face a national crisis in our labor markets and that we should be debating measures that will promote American job creation now, without delay.
We are also told by the President that we must pass our pending trade agreements with Colombia, Panama, and South Korea. Jobs are at stake, he says. As with the political campaign rhetoric exhorting Congress to pass the President’s American Jobs Act, which the Majority Leader has opted to shelve until some unspecified future date, the President delayed the action required to get these agreements passed for much too long.
Pass the American Jobs Act, the President scolds.
But we can’t because the Democrat’s Majority Leader has not brought the Act to the Senate floor. The currency bill, which is unlikely to lead to much, if any, job creation before the next election, has come first, perhaps to allow more time for campaign speeches and ads by the Democratic National Committee.
This currency bill is coming first. But what needs to come first is job creation, not electioneering and politics.
Our jobs deficit is a full-blown national crisis. The unemployment rate has been persistently above 9 percent since April of this year. It has averaged 9.4 percent since the President took office. It has been above 9 percent in 26 out of the 31 months since the President took office, despite promises by Administration economists that the massive debt-fueled stimulus, which will cost over $1 trillion dollars when all costs are included, would keep unemployment contained below 8 percent. And the unemployment rate is even higher, at over 16 percent, once you include, for example, people who want to work but have become so discouraged that they no longer look for work.
Nearly 14 million workers are unemployed, and the number grows when you include discouraged workers. The number of long-term unemployed workers has been at record highs. According to Census data released last month, those in their 20s and 30s are suffering from the highest unemployment rate since World War II. The enthusiasm of young citizens in 2008 long ago gave way to disappointment and disaffection.
Our joblessness crisis is nothing short of a crisis for liberty. When American men and women do not have jobs and opportunity, their freedom to make lives for themselves is eroded.
Yet we are to understand that in the face of this historic crisis, there is no more important issue regarding jobs than our bilateral trade with China?
Again, I agree that we need to address the issue of currency manipulation and our sustained and large trade deficits with China. However, let us be clear that dealing with issues related to China involves only one bilateral trade relationship. The trade and current account problems facing the United States, and the global financial, trade, and economic imbalances that everyone faces are not solved by addressing this one trading relationship. That is one reason I will be offering an amendment to this bill calling for multilateral and plurilateral negotiations to address currency misalignment. If we are going to succeed, we need to look at the big picture and work with our allies to counter China’s current practices. I will discuss my amendment in more detail soon, but hope it will receive strong bipartisan support.
Our trade imbalances are not with China alone. Rather, as part of the problem of saving too little, the U.S. has multi-lateral trade imbalances which require more action than focusing solely on one bilateral relationship. According to recent data from the United States International Trade Commission, the U.S. has trade deficits with nearly 100 countries. The U.S. saves too little, and that problem will not be solved solely by passing the bill before us.
Make no mistake, the legislation we are considering can provide useful tools for addressing concerns about China, if the Administration actually uses the tools. But those tools alone are not sufficient. If we try to address our multilateral problems by putting pressure on China alone, without also attending to our lack of saving and our own role in generating trade deficits with nearly 100 other countries, the Chinese piece of the U.S. imbalance will just migrate somewhere else. This bill is not a magic bullet to solve our problems or the problems arising from global imbalances. And it almost surely is not the highest priority piece of legislation if job creation is truly our focus.
The U.S., for its part, contributes to global imbalances by persistently saving too little. Following the financial crisis, which was precipitated partly by large run ups in household indebtedness, American families have tightened their belts to save more and repair their own balance sheets. It is the U.S. federal government that has been missing in action to restore national savings, reduce our federal debt, and promote global balance.
Rather than repair the federal balance sheet, the Administration has chosen to run trillions of dollars of debt-fueled deficits and borrow ever increasing sums from abroad, including China. And rather than facing the fact that the federal government has a spending problem, the President is advertising and campaigning on a new American Jobs Act stimulus-and-tax-hike platform containing even more spending and short-term debt accumulation.
We are told that it will be in the interest of the American people to borrow more today in order to spend more on infrastructure, for example. The stimulus proponents say: interest rates are low, so let’s ramp up borrowing right now. That’s the same approach the Senate took when it voted to extend and expand Trade Adjustment Assistance. They ignore, however, that piling trillions more onto our national credit card issued by China and our other creditors moves us that much faster into the company of the Eurozone countries who now face default and elevated interest costs.
While federal borrowing rates are low today, what happens when global markets tire of our profligacy and debt financed spending, and begin to demand higher interest compensation? As Spain and Italy have seen recently, low interest rates are not guaranteed and the interest rate environment that you face can pivot on a dime and escalate rapidly. Borrowing at low rates today sounds great; until you wake up tomorrow and are forced to refinance at more punitive rates. More debt-fueled government spending beyond our means is sure to drive us rapidly down the road to the stagnation and debt crises we are seeing today in Europe.
Of course, the President claims his new stimulus and tax-hike proposals are all paid for, but the payments are largely promises of future austerity. And anyone who has paid attention knows that federal government promises to go on a spending diet later never lead to fiscal weight loss because future Congresses are not bound by today’s promises.
It is interesting to hear the President’s persistent calls for more debt-fueled infrastructure spending. Presumably, given his interest in job creation “right now,” the projects he has in mind will be more shovel ready than the readiness of the previous stimulus projects, which turned into something that the President found so funny that he joked about it. Of course, it is no joke to jobless Americans who are stuck with the stimulus debt bill.
We heard in early September from the chairman of the President’s Council on Jobs and Competitiveness that the Council identified “ten high-priority infrastructure projects based on their potential to put Americans to work right away — projects that have already been funded, but are being held up by regulations.”
The Jobs Council says it will work with the Administration to try to get the projects moving. Let me repeat that: the projects “are being held up by regulations.” This comes from the chairman of the President’s own Jobs Council.
Yet when some on the other side of the aisle are reminded that regulations are holding back job creation, they recoil in disbelief. If there are ten large-scale infrastructure spending projects ready to go and already fully funded and are only being held up by regulatory review lag, I urge the President to act right now to get those projects under way in the interest of job creation. Make one fewer campaign appearance and use that time to expedite regulatory review and get those projects going if, as should be the case, he believes job creation is more important than politics and wishes to act on that belief.
We have also heard the President remarking on how, from a global competitiveness perspective, the U.S. should borrow more today and spend on what he generically calls “infrastructure,” which as it turns out can be anything from paving a road to doling out money to solar panel makers.
The President cited in his infrastructure advocacy a set of global rankings on infrastructure from the World Economic Forum’s Global Competitiveness Report. The President seemed to read the report and its ranking of the U.S. as 23rd out of 139 countries for transportation infrastructure competitiveness as a call for more spending on whatever it is he thinks of as infrastructure.
It appears, however, that he did not read the report in its entirety. If he did, he would have noticed that the ranking is for only one of nine factors in the report’s overall infrastructure assessment. More importantly, if he had read the report, he would have noticed the overriding area identified as the weakest one for the U.S. in terms of eroding our global competitiveness.
To quote the report directly:
“A lack of macroeconomic stability continues to be the United States’ greatest area of weakness (ranked 87th). Prior to the crisis, the United States had been building up large macroeconomic imbalances, with repeated fiscal deficits leading to burgeoning levels of public indebtedness; this has been exacerbated by significant stimulus spending. In this context, it is clear that mapping out a clear exit strategy will be an important step in reinforcing the country’s competitiveness going into the future.”
There you have it. The report that the President data-mined to find a number to use to support more stimulus quite clearly says that declining U.S. global competitiveness has come from fiscal deficits, exacerbated by stimulus spending. And it clearly says that the solution is to exit from our unsustainable fiscal path. That means reining in the runaway debt-fueled spending, not more spending.
Before turning to the legislative process on the bill before us, let me post a trail marker for our deliberations. The currency bill we are considering includes reliance on exchange rate models used by the International Monetary Fund. Those models allow for macroeconomic effects on currency valuations of fundamental changes in policies of trade-partner countries. For example, if the United States engages in fundamental tax reform that would lead to improved growth and reduced deficits and debt, the models considered in the legislation before us have the ability to capture those effects.
The marker I wish to set here is a reminder that we should be similarly so inclined to use economic models that allow for macroeconomic effects of policy changes when we choose to make fundamental changes to tax and spending policies. We should be as willing to have our budget scorekeepers use economic models that allow for long-run growth and macroeconomic effects of fundamental tax and spending reform policies as we seem to be here in this legislation to use models that incorporate such effects when evaluating currency alignments.
If it is good to use economic models that allow for an accounting of growth effects here, then it should be good elsewhere.
I also need to address the process that we will follow in our consideration of the currency bill before us. The bill has garnered bipartisan support. In the interest of promoting a truly bipartisan effort, which the American people would love to see, it is my hope that there will be balance in amendments that are allowed to be considered. This bill has sound objectives, but is not perfect. I believe that amendments from both sides of the aisle can improve the final product. And, as I mentioned earlier, I have an amendment that I believe will improve this bill significantly and help us devise a long-term approach to dealing with currency misalignment. I hope there will be an opportunity for it, and others, to be considered.
The overriding objective of the legislation — job creation — is shared by Republicans and Democrats alike. Therefore, it is my hope that amendments from my side of the aisle, designed to promote job growth today and in the future, will be duly considered, allowed, and duly debated.
Mr. President, I look forward to consideration of the currency bill before us and a robust, bipartisan process which includes consideration of amendments from both sides to promote job creation.
As I have said, our nation faces a crisis of unemployment and joblessness that is filled with pain today and threatens erosion of human capital and skills which will negatively impact families and the overall economy for years and years to follow. Let us not have politics and special interests dictate what we consider to promote job creation and economic growth. American workers and families, many of them struggling and in pain, cannot wait until the next presidential election is resolved for the federal government to act to promote job creation.
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