Federal Reserve Chairman Alan Greenspan told lawmakers today that there's no credible evidence U.S. manufacturing activity or factory jobs would be helped by China revamping...
WASHINGTON — Federal Reserve Chairman Alan Greenspan told lawmakers today that there’s no credible evidence U.S. manufacturing activity or factory jobs would be helped by China revamping its currency system.
The Bush administration has been pressing Beijing to change its system.
Greenspan, testifying before the Senate Finance Committee, said some “mistakenly believe” that a marked increase in the value of the Chinese currency, the yuan, 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,” he said.
The United States’ trade deficit swelled to a record $617.6 billion last year, including a $161.9 billion deficit just with China, the highest ever with a single country.
Greenspan, who issued a fresh warning to policy-makers not to turn to protectionist measures to deal with global trade tensions, has maintained that America’s bloated trade deficits wouldn’t be helped by a change in China’s currency system.
Some lawmakers in Congress want to impose hefty 27.5 percent tariffs on Chinese goods flowing into the United States if Beijing doesn’t move to a more flexible currency system.
Greenspan said such tariffs, if implemented, would lower imports from China but would also raise imports from other “low-cost” sources of supply in other countries.
“U.S. imports of textiles … assembled computers, toys and similar products would in part shift from China as the final assembler to other emerging-market economies in Asia and perhaps in Latin America, as well,” Greenspan said. “Few, if any, American jobs would be protected.”
The hearing came as China’s third-largest oil producer made a hostile $18.5 billion bid for U.S. oil company Unocal Corp. The bid marked the communist nation’s most ambitious attempt yet to acquire a Western corporation.
Sen. Ron Wyden, D-Ore., wanted to know if the deal would be reviewed by a federal panel for national security considerations. He said such a review would be imperative.
Treasury Secretary John Snow, who is head of the panel, responded: “It’s hypothetical at this point because we don’t have a transaction.” But he added: “I would fully contemplate that the parties … would want to avail themselves of that process. That is normally what happens on a voluntary basis.”
For two years, the Bush administration has been prodding China to stop linking its currency, the yuan, to the U.S. dollar, and instead move to a more flexible currency system.
Facing criticism from Democratic and Republican lawmakers, manufacturers and others for not being tough enough on the Chinese, the administration has intensified its efforts.
Over the last month, the administration has announced new limits on the amount of clothing that China can ship to the United States. It has threatened to brand China a currency manipulator unless it changes its policies. And the government has appointed a special envoy to work with China on these issues.
The Bush administration, however, has refused to bring a trade case against China over its currency practices, something that is vexing to critics.
Sen. Max Baucus, D-Mont., complained the administration “seems to me to have no plan” to deal with the China trade situation and America’s swollen trade deficits.
Baucus and Senate Finance Committee Chairman Charles Grassley, R-Iowa, in a joint letter to United States Trade Representative Robert Portman today, requested that Portman report to the panel when he is finished with his top-to-bottom review of ongoing trade issues with China.
In terms of what, if anything, Congress should do about China, Grassley said: “We must be thoughtful in our actions and get it right. We can’t afford to act rashly and get it wrong.”
A number of bills, taking various approaches, has been offered in Congress aimed at dealing with what critics believe are China’s unfair trade practices.
Sen. Lindsey Graham, R-S.C., who supports imposing hefty tariffs on Chinese goods, said to the administration: “no more saber rattling, we want results.”
American manufacturers contend that China’s system is hurting U.S. exports and contributing to losses of U.S. jobs. Manufacturers believe the yuan is undervalued by as much as 40 percent. The weaker yuan makes Chinese goods cheaper in the United States and American products more expensive in China.
Playing in a global trading game, will result in winners and losers, Greenspan acknowledged. He suggested policy-makers look to help people who lose jobs through retraining and others such things.
At some point China will let the yuan rise against the U.S. dollar because its current system represents an increasing threat — including inflation — to the Chinese economy, Greenspan said.
In pushing China to make a change, the administration has laid out a similar case.
“China’s rigid currency regime has become highly distortionary,” Snow said. He repeated his belief that now is the time for China to take significant steps forward on a currency overhaul.