- The Washington Times - Thursday, September 11, 2003

Senators from both parties yesterday questioned whether the Bush administration is pushing China hard enough to stop propping up the dollar.

The pressure came at the first congressional hearing to focus on the growing source of political and economic discontent.

Treasury Secretary John W. Snow, in a major break from the “strong dollar” policy that has prevailed since 1995, last week went to Beijing to urge a change in China’s policies, which are allowing the country to expand exports to the United States and have contributed to the loss of millions of U.S. manufacturing jobs in the past two years. China promised incremental steps away from its fixed exchange rate, which by some estimates is 40 percent too low, but took no immediate or dramatic action.

Mr. Snow’s visit, while the first to directly confront China on the issue, appears to have increased fervor in Congress for swift action. Lawmakers at a Senate Foreign Relations Committee hearing yesterday said their constituents are anxious about the incursions China has made into U.S. markets at the expense of American businesses and jobs. China’s trade surplus with the United States has exploded to an estimated $120 billion this year from $23 billion a decade ago.

“Let’s face the reality of what China is doing: They’re cheating,” said Sen. George Allen, Virginia Republican.

China’s policy of fixing the Chinese yuan at 8.3 to the dollar has given the Asian giant a 30 percent to 40 percent advantage in trade over U.S. manufacturers of textiles and furniture in Southern U.S. states, the senator said, and the result has been a decimation of U.S. businesses and jobs.

Forcing China to stop fixing its currency would go a long way toward restoring balance in trade between the countries, Mr. Allen said.

But short of that, the Bush administration should impose trade sanctions and file unfair trade practices cases with the World Trade Organization to ensure China plays by the rules it agreed to in joining the WTO, he said.

“It’s absolutely essential that our government … makes sure they comply,” he said. “Sometimes you have to put in countervailing duties. It’s a last resort, but it is a resort and a remedy that in some cases [is] absolutely necessary.”

Sen. Lamar Alexander, Tennessee Republican, said China is rapidly becoming the kind of formidable trade foe in the public’s mind that Japan was during the 1980s.

The administration must coax, coerce and cajole China, using every office at its disposal, to resolve the trade problem, he said.

“As we look over the next dozen years in this country, our biggest economic challenge, our most difficult one, will be how do we keep too many of our jobs from moving to China, or appearing to move to China,” he said.

Assistant Secretary of State James Kelly assured committee members that the administration brings the currency and trade issues to China’s attention at every opportunity. But he cautioned that correcting America’s lopsided trade imbalance with China will take a long time, and it may never be eliminated.

“We have a structural problem and it’s going to be very slow to resolve itself,” he said. A major source of the imbalance is the disparity in workers’ pay between the countries. The average wage of Chinese workers, at about $1,200 a year, is far below the $26,000 average in the United States and is a major reason that U.S. companies are building plants in China while closing offices here, he said.

China’s seemingly endless supply of low-wage, skilled workers has attracted businesses from many countries, making China the top destination of foreign investment worldwide. Other developing countries in Asia — and even Mexico — recently have complained that China is taking away business from them.

Committee Democrats questioned whether the administration was putting other considerations — particularly its efforts to get China to help curb nuclear-arms development in North Korea — ahead of economic matters. Media reports suggested Mr. Snow softened his pleas on the currency issue in deference to disarmament talks that were taking place at the time among the United States, China and North Korea.

Mr. Kelly said he does not believe that Mr. Snow “was in any way restricted” from confronting the Chinese because of foreign policy concerns. “The president’s policy is that we have to be able to work on all of the issues with China” at the same time, he said.

Administration officials say they are trying to use incentives rather than threats. It is in China’s interest to stop accumulating dollars and massive foreign exchange reserves, estimated at $356 billion, they point out, because it could lead to an inflation problem.

Mr. Kelly said starting a trade or economic war with China would be a mistake.

He said threats to take punitive measures against China “might be counterproductive if we had to carry them out.”

Sen. Russell D. Feingold, Wisconsin Democrat, said the administration should “continue the positive,” but also communicate to China “that in my state there is a growing consensus that the problems with competition with China are in many ways destroying our manufacturing base.”

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