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FOR IMMEDIATE RELEASE: September 9, 2003

SENATORS ANNOUNCE BIPARTISAN EFFORT TO FORCE CHINA TO STOP CURRENCY MANIPULATION

New tough approach tells Chinese government to stop manpulating its currency or risk being slapped with large tarrifs on its exports

Bipartisan group of Schumer, Bunning, L. Graham, Dole, Durbin, and Bayh announce broad-based effort to level playing field for American industry

In the wake of China's refusal this week to immediately float its currency, a bipartisan group of lawmakers comprised of US Senators Charles Schumer, Jim Bunning, Lindsey Graham, Elizabeth Dole, Richard Durbin, and Evan Bayh today unveiled new legislation, S. 1586, to impose an across-the board tariff on Chinese imports in an effort to reduce China's unfairly undervalued currency advantage. The Senators said the Chinese undervaluation of its yuan has played a major role in the loss of 2.6 million US manufacturing jobs since March 2001 and is contributing to the migration of service and engineering jobs to China.

"The Chinese want to have it both ways: On one hand they want free trade and want membership in the WTO and other international trade organizations. But on the other hand, they don't want to play by the rules of those organizations. The Chinese actions endanger American and world commitment to free trade and weaken the support in Congress for free trade," Schumer said. "This legislation is a tough-love effort to get the Chinese to stop playing games with their currency in order to level the playing field for American companies trying to compete with goods and service coming from China."

“There is no question that China’s unfair trade practices have played a major role in the loss of millions of U.S. manufacturing jobs,” said Bunning. “This legislation is a shot across the bow to let the Chinese government know that the United States is serious and committed to making sure that China lives up to the principles of free and fair trade.”

“I have said for years the Chinese cheat on their trade agreements,” said Graham. “In my home state, I’ve seen the devastating impact illegal Chinese imports have on our domestic textile industry. I hope the Administration will act decisively in the near term before we lose additional jobs to an out of control China. My resolution and this bill will send a strong message from the Senate for corrective action against Chinese trade abuses. Until China is reigned in and starts playing by the rules, our manufacturing industry will continue to bleed jobs because of unfair Chinese trade practices.”

“A large number of the United States’ economic woes related to manufacturing can be summed up in one word: China,” said Senator Dole. “China is engaging in deceptive trade practices and let’s call it what it is - cheating. China has been undervaluing its currency so it can undercut U.S. manufacturers by artificially lowering the cost of Chinese goods - making it impossible for U.S. manufacturers to compete. It's time to hold China accountable for this deception.”

“The Chinese Government's decision to undervalue its currency violates the spirit and letter of the world trading system of which China is a partner, and it is killing manufacturing jobs in the U.S. We have tried to use reason and diplomacy, but China has made no moves to either reevaluate their fixed currency or change it to a floating currency,” said Durbin. “This legislation is designed to send an unmistakable signal to the Chinese - stop the market manipulation or pay the price with your trading partners.”

“When American manufacturers lose business because of a rigged competition, workers lose their jobs and families suffer,” Senator Bayh said. “This proposal will level the playing field for American workers until the Chinese government corrects its currency levels.”

Specifically, the legislation would apply a "symmetrical" tariff of 27.5% in line with China's currency undervaluation that would be applied across the board to products from China. It would allow the President to remove sanctions once he certifies that China has moved to a market-based currency. The tarriffs would kick in after a grace period of 180 days to ensure that Treasury officials have adequate time to work with the Chinese government to institute reforms.

The yuan -- sometimes known as renminbi -- has been tightly pegged to the U.S. dollar since 1994 (approximately 8.28 yuan to the dollar). During that period of time, China’s economy has grown dramatically, averaging over 8% per year. If China’s currency freely floated in the market, as is the case with virtually all major world currencies, it would have appreciated substantially reflecting China's underlying economic strength. However, it has remained at the same pegged value, and the result is that many economists estimate that the yuan is now undervalued by between 15 and 40 percent.

The undervaluation of the yuan makes China's exports relatively less expensive for foreigners, and it makes foreign products relatively more expensive for Chinese consumers and discourages imports. The effective result is a significant subsidization of China's exports and a virtual tariff on foreign imports. Consequently, China has enjoyed enormous export success – exports grew 22% in 2002 to $125 billion, they were $62 billion in 1997 – and a much more modest increase in imports – China’s imports from the U.S. have increased to $19 billion from $13 billion in 1997. The result is that China’s trade surpluses are at record highs, and its economic growth continues unabated, even in the face of the SARS health crisis.

As the United States largest export industry, manufacturing has felt the impact of the yuan’s undervaluation most dramatically. Since the start of the recession in March 2001, the manufacturing sector has lost approximately 2.6 million jobs, which accounts for nearly 90 percent of the total U.S. jobs lost, yet manufacturing employment is less than 14 percent of the U.S. workforce. In fact, in June the continuing job losses in manufacturing – 56,000 jobs lost – offset employment increases in other sectors. June was the thirty-fifth straight month of declining jobs in the manufacturing sector, the worst record since World War II. The Senators said the state of the US manufacturing sector is one of the driving factors in the nation's current and prolonged economic difficulties.

In order to hold the value of the yuan within its tight and artificial trading band, the Chinese government has intervened in its foreign exchange markets. This practice has resulted in enormous growth in China’s dollar reserves, estimated to be over $345 billion as of June 2003. China's increase in reserves over the past twelve months exceeded that of any other country in the world.

However, the practice of “currency manipulation” to gain a trade or competitive advantage violates World Trade Organization and International Monetary Fund agreements, of which China is now party. China’s emergence as a manufacturing powerhouse at the expense of the United States raises significant economic security concerns and the question of whether a country that loses its ability to produce tangible products will long remain an economic power.

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