Jun 24 2004

Graham Wants Congress to Get Tough on Chinese Currency Manipulation

WASHINGTON -- U.S. Senator Lindsey Graham (R-South Carolina) today said Congress should heed the warnings contained in the recently released U.S.-China Economic & Security Review Commission report and take action to curb Chinese currency manipulation abuses. Graham was joined at the Capitol Hill press conference by U.S. Senator George Voinovich (R-Ohio). Graham noted the Chinese yuan has been tightly pegged to the US dollar in a range of 8.28 yuan per dollar since 1994.  Given China's enormous growth over the past decade, if the yuan were allowed to float freely, like other major currencies, economists believe it would appreciate substantially against the U.S. dollar. The first recommendation to Congress made by the Commission was to address China’s currency manipulation. “The Commission report serves as a wake-up call to Congress,” said Graham. “We have lost thousands of manufacturing and textile jobs not because the Chinese work harder or smarter, but because they are cheating. Congress chose to empower the Commission to look into issues affecting U.S.-China relations, now the question is will we listen to them?” In its findings, the Commission reported:
  • China is systematically intervening in the foreign exchange market to keep its currency undervalued.
  • An immediate and significant upward reevaluation of the Chinese yuan against the dollar, combined with the removal of discriminatory Chinese trade practices, should help reduce the U.S. trade deficit with China which was $124 billion in 2003.
  • China’s intervening to keep the yuan undervalued is in violation of the International Monetary Fund (IMF) which says members should, “avoid manipulating exchange rates…in order…to gain an unfair competitive advantage over other members.”
  • China should implement reforms to prepare them for an eventual floating exchange rate. At this time, they should refrain from moving to a floating exchange rate as its banking system and financial markets are not prepared.
Economists estimate the yuan may be undervalued by 15 to 40 percent. The intentional manipulation makes their goods and services cheap internationally.  The practical effect of this manipulation means Chinese manufacturers receive a 15 percent to 40 percent discount on their exports, providing them with a nearly insurmountable advantage over American producers. “China’s cheating is hurting American manufacturers and textile producers,” said Graham. “American workers can compete with anyone given a fair opportunity. Unfortunately, that opportunity does not exist in today’s economy.” Graham said he will continue to push for action on legislation he offered with Senator Charles Schumer (D-NY) requiring China to abide by international trade agreements and stop manipulating their currency. The legislation:
  • Initially gives China a window of 180 days to revalue their currency or be faced with a 27.5 percent tariff on all Chinese manufactured goods.
  • Requires the President to certify China “is no longer acquiring foreign exchange reserves to prevent the appreciation of the rate of exchange between its currency and the United States dollar for the purpose of gaining an unfair competitive advantage…” The certification includes a determination that China has “undergone substantial upward revaluation placing it at or near its fair market value.”
  • Provides that if China has made a good-faith effort to revalue, the President may delay the imposition of tariffs for an additional 180 days. If at the end of the additional 180 days, the President determines that China has developed a plan to revalue, he may delay the imposition of tariffs for an additional 12 months.
“The Schumer-Graham legislation gives China ample time to make the necessary, structural changes to the valuation of their currency,” said Graham. “If China wants to be part of the international community, it’s time for them to clean up their act. Until they are reigned in and start playing by the rules, our manufacturing industry will continue to bleed jobs because of unfair Chinese trade practices.” #####