[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
EFFECT OF THE OVERVALUED DOLLAR ON SMALL EXPORTERS
=======================================================================
HEARING
Before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, JUNE 12, 2002
__________
Serial No. 107-61
__________
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
81-575 WASHINGTON : 2002
____________________________________________________________________________
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Hearing held on June 12, 2002.................................... 1
Witnesses
Chimerine, Dr. Lawrence, Economist............................... 1
Raimondo, Tony, President & CEO, Behlen Manufacturing Company.... 4
Weskamp, Robert J., President, Wes-Tech, Inc..................... 6
Dollar, Wayne, President, Georgia Farm Bureau.................... 8
George, Vargese, President & CEO, Westex International, Inc...... 10
Appendix
Opening statements:
Manzullo, Hon. Donald........................................ 23
Velazquez, Hon. Nydia........................................ 25
Prepared statements:
Chimerine, Dr. Lawrence...................................... 27
Raimondo, Tony............................................... 34
Weskamp, Robert.............................................. 43
Dollar, Wayne................................................ 52
George, Vargese.............................................. 62
Additional Information: Correspondence sent to committee on the
overvalued dollar.............................................. 68
EFFECT OF THE OVERVALUED DOLLAR ON SMALL EXPORTERS
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WEDNESDAY, JUNE 12, 2002
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:02 a.m. in room
2360, Rayburn House Office Building, Hon. Donald Manzullo
(Chairman of the Committee) presiding.
Chairman Manzullo. We are going to call the Committee to
order. We have an eleven o'clock joint session to welcome John
Howard who is the Prime Minister of Australia, and I really
want to finish before that happens.
I am going to waive the opening statement, move immediately
into testimony on the effect of overvalued dollar. The title is
Effect of Overvalued Dollar on Small Exporters, but it is
really the effect of overvalued dollar on small businesspeople
because we have people involved in manufacturing and other
sales that do not export, but who are losing a share to people
who do export into this country, to those customers that are
normally those of the small manufacturers who have been
displaced because of the high dollar.
Let us move immediately to the testimony of Dr.--you have
got to help me--Chimerine.
[Chairman Manzullo's statement may be found in appendix.]
Mr. Chimerine. Chimerine.
Chairman Manzullo. Chimerine, President of Radnor
International Consulting. We are going to put on the five-
minute clock, so we have plenty of opportunity for interaction
afterwards.
And, Doctor, we look forward to your testimony.
STATEMENT OF LAWRENCE CHIMERINE, PRESIDENT, RADNOR
INTERNATIONAL CONSULTING
Mr. Chimerine. Thank you very much, and I will stick within
the schedule. I am going to talk primarily about the
macroeconomic impact or the overvalued dollar.
Chairman Manzullo. Okay, if you could keep the microphone
closer to your mouth, it is a lot easier to hear. Thank you.
Mr. Chimerine. I am going to talk mostly about the
macroeconomic impacts and the impacts on small businesses of
both the trade deficit and the dollar.
It was very fashionable in this country during the 1990s to
argue that trade deficits do not matter because the economy did
so well despite the fact that our trade deficit was rising to
levels that we had never seen before.
In my opinion, that was a temporary phenomenon. Trade
deficits do matter. They did not in the nineties because
domestic demand--consumer spending, housing, business spending
for capital goods--rose so rapidly that they offset the
increase of the trade deficit on the economy. In fact, some of
the increase in the trade deficit was simply a reflection of
how strong the U.S. economy was. It was sucking in more imports
because demand was so strong.
Plus, you know, there were some benefits from the
overvalued dollar. It held inflation down a little bit, and
held interest rates down which contributed to strong domestic
economic growth.
The situation is very different now. It is highly unlikely
we are going to see domestic demand rise at the rate it did
during the 1990s at any time in the near future. But the trade
deficit continues to rise. This will make already slow economic
growth much slower. In fact, you can argue that without a
decline in the trade deficit to offset or negate some of the
slower growth in domestic demand, the economy is going to go
virtually nowhere for the next several years, or at best a slow
and uneven recovery.
So the trade deficit is a serious macroeconomic problem in
the short term, because if it doesn't come down it will hold
down our economic growth. It is also a problem in the long term
because we are building up so much foreign debt because of
these trade deficits. Sooner or later foreigners are going to
decide they do not want to keep accumulating dollar assets.
When that happens you will see a huge increase in our interest
rates. So longer term it is a big threat to prosperity as well.
We need to bring the trade deficit down, and the dollar is
the key. There are a number of reasons why we have these large
trade deficits, particularly the structural portion that does
not relate to macroeconomic trends. For example, many markets
are still closed overseas. Foreigners dump many products into
the U.S. market. But right now the biggest factor is the
misalignment of exchange rates. Everybody, I think, here knows
the dollar is at least 25 to 30 percent overvalued against most
currencies.
I am not an advocate of a weak dollar, but I think
sometimes we make the mistake of thinking, well, if you are not
for a weak dollar, you are for a strong dollar. And the problem
is the law of diminishing returns applies to exchange rates
like it does to everything else. If the dollar keeps getting
stronger and stronger, at some point the negative effect on
trade flows, by holding down exports, and leading to increased
import penetration displacing domestic production as well,
these trade effects, which we have seen in large measure over
the last couple of years, begin to outweigh the positive effect
of the dollar on interest rates and inflation. We are going to
have low inflation anyway. We do not need the dollar to keep
getting stronger and stronger to hold down U.S. inflation. We
have competition doing it in this economy.
There is no doubt in my mind that we are far beyond the
point where the dollar is a help to the U.S. economy. It has
become a big negative through these trade effects, not only in
the short term and through the macro effects, but it is hurting
the long-term competitiveness as well. All the industries,
particularly manufacturing and agriculture, that are being hurt
by the strong dollar, do not generate the business volumes and
the profits to afford to make the new investments they need to
make to remain competitive in the long term. So it hurts the
economy in the short term through trade flows, and hurts long-
term competitiveness.
Small businesses are hurt the worst because they do not get
the economies of scale, the benefits from having large
operations where you can hold down average costs through
economies of scale, and offset some of the disadvantage caused
by misaligned exchange rates. So it is a problem for the
macroeconomy, and an even bigger problem for small businesses.
It is almost the equivalent of legalized dumping. I mean,
the exchange rate advantage is so huge for foreign exporters
that they can sell into the U.S. market at very low prices
without even dumping, and they make fat profit margins in the
process.
What do we do about it? Very quickly, I think three or four
things.
Number one, we need to put more pressure on foreign
countries to simulate their own economies, to grow out of the
current malaise we are seeing, particularly in Western Europe,
and in Japan, and in other parts of the world. Most of those
countries are waiting for the U.S. economy to go up to lift
their exports to bring them out of their recessions. We should
make it clear to them that is no longer acceptable. They have
got to stimulate domestic demand by cutting interest rates,
cutting taxes, raising spending, or whatever other measures are
appropriate; in Japan, fixing their banking problems more
rapidly would be a help.
Secondly, we have got to tell these countries, particularly
Japan, Taiwan, China and others, that we are no longer going to
tolerate their manipulation of exchange rates. Those central
banks accumulate dollars at a huge rate to prevent them from
hitting the exchange markets. It keeps the dollar overvalued,
and their currencies undervalued, to help them export. That
comes at our expense and we ought to make it clear that that is
no longer acceptable.
And finally, I think it is very, very important that in
this country we watch our fiscal and monetary policy to make
sure they are being implemented in a manner that is conducive
to a more fair dollar, and conducive to a better trade balance
than we have had in recent years.
For example, in the next several years, if we keep running
larger and larger budget deficits, it will increase our
dependence on foreign capital, probably push the dollar even
higher, and that would be counterproductive.
So I think we need to look at our own policies, and we have
got to make it clear to our foreign counterparts they have got
to--they cannot just depend on the U.S. to lift everybody up,
and they have also got to stop manipulating their exchange
rates.
Thank you, Mr. Chairman.
[Mr. Chimerine's statement may be found in appendix.]
Chairman Manzullo. Thank you, Doctor.
Our next witness is Tony Raimondo; is that right?
Mr. Raimondo. Thank you, Mr. Chairman.
Chairman Manzullo. Okay. President and Chief Executive
Officer of Behlen Manufacturing of Columbus, Nebraska. Where is
Columbus.
Mr. Raimondo. Columbus, Nebraska is about 70 miles
northwest of Omaha.
Chairman Manzullo. Okay. Look forward to your testimony.
Mr. Raimondo. Thank you very much, Mr. Chairman.
Chairman Manzullo. The complete statements of the witnesses
and all the members will be made part of the permanent record,
without objection.
Go ahead.
STATEMENT OF TONY RAIMONDO, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, BEHLEN MANUFACTURING COMPANY
Mr. Raimondo. Thank you. I will not repeat that then, my
little overview.
Yes, I am CEO of Behlen Manufacturing, a very diverse metal
fabrication company. We are a medium-sized manufacture of pre-
engineered metal building, grain bins, dryers, we call them
silos all around the world. We have got product in over 50
nations, and I am very proud that we were a recipient of the
President's E-Award.
I wanted to commend you, Mr. Chairman, for holding this
hearing on what is one of the most serious problems facing
small and medium-sized manufacturers.
As you know, I am also on the NAM board, National
Association of Manufacturers, and representing, if I say SMM's,
it is small, medium-sized manufacturers. We are among the best
in the world. We have really done some tremendous things in the
nineties as we have gotten globally more competitive than ever
in America.
We are innovative, productive and competitive in all
respects as long as the playing field is level. Exports are
important to small and medium-sized companies. In fact, we
comprise 97 percent of all U.S. exporters and account for about
one-third of all U.S. merchandise that is exported.
Unfortunately, there is a major factor beyond our control
that has tilted the global playing field against us and it is
causing extremely serious harm in America's small and medium-
sized factories. The factor, as you know, is the overvalued
dollar.
After more than a decade of relatively stability the dollar
started shooting up around 1997, and by February this year it
has risen 30 percent. That rise has had a devastating effect on
my firm's exports and on small and medium-sized manufacturers
across the country. The dollar has since declined slightly
against some major currencies, but still has a long way to go.
Let me explain the effect on my company. We built our
exports to a point at which in 1998 we had reached 15 percent
of our volume. We were a little naive at that point in time. We
set a goal for 20 percent. As the dollar continued to rise, I
find my company today in the eight percent range, and we
continue to be globally competitive. As the dollar began to
appreciate significantly, we began losing out to foreign
competitors not because they are more productive or began
producing a better product, just because of the rising value of
the dollar.
Instead of continuing to grow, our exports have fallen.
Behlen Manufacturing is not alone in this dilemma. Being on the
board of directors of the NAM, National Association of
Manufacturers, I met with several, and we have been inundated
with letters, as you know, Mr. Chairman, and I can tell that
this story is very, very typical.
In our situation we have lost--we used to like to say that
we had, at any given time 100 jobs in Columbus, Nebraska
working on exports. Today we are lucky to have 50, and it is
getting more difficult.
The U.S. manufactured export goods have fallen at an
amazing $140 billion in the last two years, principally because
of the dollar's overvaluation. To put this loss in perspective,
it is as large as the entire gain, that the NAM estimates, will
come from the free trade area of the Americas when it is fully
implemented 14 years down the road. So we are talking about
big, big impacts.
The SMM's share of that 140 billion decline is about 45
billion that we have lost in exports. We cannot suffer that
kind of huge loss without incurring severe setbacks in
production and employment.
In addition to the thousands of SMM's who are affected by
the dollar impact on their exports, the are thousands more who
are also, as you mentioned earlier, affected by unrealistically
low import prices in domestic markets stemming from the
overvalued dollar.
Many smaller firms have written to the Committee. America's
SMM's are not seeking an artificially cheap dollar. What we are
asking for is recognition that the dollar has been allowed to
become seriously overvalued and the overvaluation is imposing a
very high cost on SMM's and on the entire economy as a whole.
The dollar is distorted and needs to be restored to normal
levels.
Certainly a starting point must be the U.S. government to
stop advocating a strong dollars when the dollar is already so
overvalued, and to begin working actively to restore the dollar
to normal levels. Whatever needs to be done should be done.
The U.S. government should also object when other countries
intervene in foreign currency markets to prevent their currency
from adjusting to market-driven changes. I just spent two weeks
in China while the dollar was somewhat softening, a very little
amount, and every other day you would read about Japan taking
steps to assure that their yen was not strengthening. It is a
very, very high profile subject there, and we need to not
coast, and be proud of our strong dollar. We need to get the
right balance.
Mr. Chairman, I hope you will lend your able and active
support to working with your colleagues to see that the
administration begins acting to end the dollar's overvaluation.
I cannot think of anything more important that this Committee
could do to assure--the future of our small and medium-sized
manufacturing companies really are at stake. In this last
recession many of them have gone out of business. It is really
time. We have got to save a lot of jobs, Mr. Chairman, and we
hope and we appreciate your help.
[Mr. Raimondo's statement may be found in appendix.]
Chairman Manzullo. Appreciate that. First we have to
convince the Secretary of the Treasury----
Mr. Raimondo. We understand.
Chairman Manzullo [continuing]. To talk a little bit
differently. Sometimes strong is not strong.
Mr. Raimondo. Thank you.
Chairman Manzullo. Our next witness is Bob Weskamp,
President of Wes-Tech, speaking on behalf of his own business
and on behalf of AMT, the Association for Manufacturing
Technology.
We look forward to your testimony.
STATEMENT OF ROBERT J. WESKAMP, PRESIDENT, WES-TECH,
INCORPORATED; ON BEHALF OF THE ASSOCIATION OF MANUFACTURING
TECHNOLOGY
Mr. Weskamp. Thank you, Mr. Chairman.
I am the president of Wes-Tech in the Chicago land area,
and we manufacture products and services in and around the
machine tool area. I am also a director of Ingersoll
International, one of the largest machine tool manufacturers in
the world.
Today, I am testifying on behalf of AMT, which was formerly
the National Machine Tool Builders Association. It happens to
also be, commensurate with our 100 year anniversary. I
appreciate the opportunity to testify before the Committee on
the impact of the overvalued dollar on our industry.
The strength of the dollar combined with the efforts of
other nations to weaken their currencies have had a triple
impact on the health of U.S. manufacturing technology industry,
particularly for machine tool builders.
Firstly, an overly-strong dollar hurts our export
competitiveness in an economic environment that places more
emphasis on the cost of the products than on the value of the
product.
Second, the price advantage provided to foreign competitors
through the exaggerated strength of the dollar has led to
increases in import penetration in the U.S. machine tool market
over the past four years.
Third, and perhaps the most insidious impact of the overly
strong dollar, however, is the general decline in U.S. parts
and components as more parts and components for U.S. products
originate from offshore. In other words, many of our
traditional customers are driven by the high dollar to purchase
less expensive parts and components offshore instead of
manufacturing those components and parts here in the United
States.
Those three factors have left the United States machine
tool industry dramatically weakened, and this could have a very
significant effect on the possibility of a rapid U.S. economic
recovery.
The impact on U.S. manufacturers has been more devastating
at home and abroad. For example, exports of U.S. products have
declined from the period of 1997 to 2001 by nearly 20 percent.
The impact of the overly strong dollar has been even more
dramatic at home. Import penetration of the U.S. machine tool
market has grown 25 percent in just the last two years from 50
percent in 1999 to 63 percent in 2001.
My written testimony cites for examples where the overly-
strong dollar has hurt my company. In three of the examples, we
lost large contracts with well established customers based
solely on price to foreign competition. Our European
competitors were able to offer products at prices that we
simply could not match.
In the last example, Wes-Tech actually won the contract
that we were bidding on, but because of the pricing structure
from the foreign competition we were forced to sell the project
at such a low profit margin that in order to keep the customer
and keep the business and protect our technology the pricing
level drove us to a position of zero profit on the project. The
bad news is that despite cost cutting, we could not turn a
profit on the project, and in the long run zero profit as the
norm is not a sustainable, workable strategy.
Ingersoll is one of the largest machine tool manufacturers
in the world. The overly-strong dollar and other problems faced
by the machine tool industry have changed that. Ingersoll
employment has continually declined and its employment level of
a peak of 2200 has been reduced to 650. There is a very real
possibility that Ingersoll will qualify as a small business by
the end of 2002. Most of the employment cutbacks in the
Rockford area have been through lay-offs as a result of this
reduced business volume.
This is not the first time that American manufacturers have
faced the challenges of a strong dollar and its impact on price
competitiveness. In the past, U.S. economic strength relative
to our trading partners was the primary factor that led to a
strong dollar. However, this time the dollar's relative
strength is the result of poor industrial, fiscal and monetary
policies by our largest trading partners in conjunction with
intervention by them to weaken their own currencies. It is
unfair to ask our manufacturers to compete in a global market
that is artificially created by foreign governments.
Two years ago the AMT issued a report highlighting the
dramatic increases in manufacturing productivity accompanied by
the machine tool industry during the past decade. These
productivity increases enabled U.S. machine tool builders to
keep pace with the dramatic decline in foreign machine tool
prices created by the overly-strong dollar.
But by mid-2001, even the most highly productive U.S.
builders could no longer keep pace with the over-strengthening
dollar; and companies began to experience the challenge in cash
flow. Companies in business for more than a hundred years found
themselves at the mercy of banks striving to reduce debt. The
industry today is faced with an ever-increasing frequency of
foreclosures.
The U.S. Treasury must realize that its policy has not
worked. Treasury claims it has ``sent a message.'' But our
trading partners are not listening, and so a more direct
warning needs to be sent. The official U.S. position ought to
be that the dollar should reflect the underlying strength of
the U.S. economy. That is most decidedly not the case today.
And overly-strong dollar is ruining the U.S. machine tool
industry and America's industrial base at large. If the
American machine tool industry does not exist, where will
America's defense companies go for their equipment? Would you
dare put your classified projects offshore?
The U.S. is rapidly losing machine tool capability and this
is a serious threat to the backbone of our industrial strength.
Mr. Chairman, we must not allow this to happen, and that is why
I am pleased that you are holding this hearing to call
attention to the continuing problems of the overvalued dollar.
Thank you very much, Mr. Chairman.
[Mr. Weskamp's statement may be found in appendix.]
Chairman Manzullo. Thank you.
The next witness is Wayne Dollar. Is that your real name?
Mr. Dollar. Yes, sir.
Chairman Manzullo. All right, I just wanted to make sure.
President of the Georgia--you have had to live with that name
ever since you were born, have you not? President of the
Georgia Farm Bureau, statement of the American Farm Bureau
Federation.
And Wayne, I presume that you are speaking on behalf of the
American Farm Bureau, and you are also a farmer; is that
correct?
Mr. Dollar. Correct.
Chairman Manzullo. And we look forward to your testimony.
STATEMENT OF WAYNE DOLLAR, PRESIDENT, GEORGIA FARM BUREAU; ON
BEHALF OF THE AMERICAN FARM BUREAU FEDERATION
Mr. Dollar. Thank you very much for that introduction. I
wished you had said I am from Ochlocknee, Georgia.
Chairman Manzullo. And he is from Ochlocknee, Georgia.
Mr. Dollar. I am testifying on behalf of American Farm
Bureau which is the nation's largest agricultural organization
and our members produce about each and every product and
commodities you can name. And we certainly appreciate the
opportunity of being here, and we feel like the exchange rate
is the single most important of all the things that we are
talking about today.
Our farmers and ranchers are losing export sales for the
past three years because the dollar is pricing the product out
of the market both at home and abroad. Agriculture is one of
the most trade-dependent sectors of our economy. Our sectors
maintain a trade surplus for over two decades, but that surplus
is shrinking. One of the primary factors affecting our
declining trade balance is the strong value of the dollar.
We are also deeply concerned about countries that engage in
currency devaluations in order to gain an export advantage for
their producers. The real trade-weighted exchange rates for
agricultural exports from our major competitors have exhibited
a long-term trend of depreciation against a dollar, contrary to
market fundamentals. This trend has persisted over several
decades, leaving it hard to conclude that this is not a
deliberate monetary policy of these and other governments.
The U.S. agriculture relies on exports for one-quarter of
its income. In addition, about 25 percent of agriculture
production in the United States is destined for a foreign
market. With a strong dollar, we have the double challenge of
our products being less competitive in foreign markets while
products from other countries are more competitive in the U.S.
market.
There is a strong relationship between the value of the
dollar and the domestic price of our commodities. As the value
of the dollar rises, foreign buyers must spend more of their
currency to purchase our exports which causes them to decrease
their consumption of U.S. commodities or buy from our
competitors instead. The resultant drop in consumption drives
U.S. commodity prices down even further.
The increase and strength of the dollar and steady
depreciation of the currencies of our major export competitors
have had a profound impact on our ability to export. In fact,
the rising depreciation of the dollar is one of the primary
reasons why the agriculture economy did not experience economic
prosperity that most other sectors of the U.S. enjoyed between
1995 and 1999.
The USDA estimates that 14,000 plus jobs are lost for every
one billion dollars decline in agriculture exports. As a
result, agriculture employment lost 87,000 jobs between 1997
and 2000, a period wherein the real agricultural exchange rate
was rising rapidly and U.S. agricultural exports were stagnant.
For some commodities, the rising value of the dollar has
directly contributed to the export competitiveness of our
foreign rivals. The strong dollar enables our competitors to
expand their production and gain market share at our expense.
Let me give you a few commodity-specific examples.
Beef, since 1995, the dollar has appreciated 42 percent
against the currency of beef-producing countries.
Fruits, from 1995 to 2000, U.S. import of fruits and nuts
jumped 33 percent largely due to the dollar's 18 percent gain
with respect to the currency of foreign suppliers of these
commodities to the United States. Corn, the U.S. dollar
appreciated 39 percent; soybeans, you saw an increase.
And let me say in conclusions American farmers are the most
productive in the world. However, the comparative advantages of
producers generally enjoy are mitigated by the rising
appreciation of the dollar. Exchange rate issues are certainly
increasing in importance for our sector. If these issues are
not resolved by microeconomic policies, there will be a
continued pressure to find solutions in a traditional foreign
policies.
Effective long-range financial planning at the farm and
ranch level and the overall economic health of U.S. agriculture
depends on more stable exchange rates that do not overvalue the
U.S. dollar against our competitors' currency.
Thank you, sir.
[Mr. Dollar's statement may be found in the appendix.]
Chairman Manzullo. Well, thank you.
I was on an airplane, and I asked for some peanuts. And the
flight attendant brought over some pretzels. And I said I am
allergic to pretzels. And she looked at me. It was funny then.
[Laughter.]
Mr. Dollar. Ninety-eight percent of the people want
peanuts, but Delta thinks that eight percent is more important
than 92.
Chairman Manzullo. Is that what it is? It is not just
Delta, it is United. That is all you get nowadays is peanuts,
and you always--you equated airline trips with a bag of peanuts
like going to the circus, you know.
Our next witness is--we have been through this before, Mr.
George, on your first name. It is Vargese.
Mr. George. Vargese.
Chairman Manzullo. Not even close. Vargese. Oh, Vargese.
Okay, Vargese George. He is president and CEO of Westex
International. I think you have testified before us a couple of
different times, and I--twice before, and I finally learned how
to pronounce your last name.
And speaking on behalf of your company and all the Small
Business Exporters Association, look forward to your testimony.
And could you pull that microphone up as close as you can?
Thank you.
STATEMENT OF VARGESE GEORGE, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, WESTEX INTERNATIONAL, INCORPORATED; ON BEHALF OF SMALL
BUSINESS EXPORTERS ASSOCIATION
Mr. George. Thank you, Chairman Manzullo, Representative
Velazquez, members of the Committee. Good morning.
Again, my name is Vargese George. I am the CEO of a
Washington, D.C.-based export company, and I employ 18 people.
We have been supplying products and materials for the
United States for construction products and also the MRO, which
is maintenance, repair and operation supplies, to worldwide
clients over the last 20 years.
I had the privilege of testifying before this Committee
several years ago, and I am happy to be back. Today, I am also
representing the Small Business Exporters Association. SBEA is
the nation's oldest and largest nonprofit association of small
and mid-sized exporters. SBEA is also the international trade
arm of the 65,000 member National Small Business United.
As this Committee is surely aware, the number of small
business exporters have tripled to more than 200,000 in the
last 20 years. Like the other witnesses in this morning's
hearings, we at Westex and at SBEA are deeply concerned about
the high valuation of the dollar compared to other currencies.
The high price of dollar has been a significant factor in
my company's loss of over $2 million worth in sales during the
last one year alone. It has been especially costly to us in the
Middle East and South Asia. We make our offers all in dollars
because, like most small exporters, we can not assume--absorb
the exchange risk and the losses resulting after the deal is
made. But with the dollar's high cost, we have seen our
overseas customers switching their purchases to my competitors
from Europe as well as in the Far East.
We also have been hurt when foreign governments step into
projects when we are bidding to offer extremely generous terms
of finance, and though the dollar has dropped a bit in recent
months, especially against the Euro, the government still must
do all it can to assure that the U.S. products remains
competitive in the global market.
At the highest levels our government leaders must work with
their foreign counterparts to assure that the dollar is not
artificially overvalued, and that other currencies are not
being pushed below their true value.
But having said that, we should not try to drive the dollar
down by painting a darker picture of the American economy than
the facts warrant. That could come back and haunt us.
Still, we can certainly observe that economic conditions
improving in the Euro zone and perhaps even in Japan now, there
are other steps the government could take to exporters also. We
need to catch up with the European Union in signing trade
agreements with the other countries. Tariffs and trade barriers
are falling for European exports, and that is complicating the
problem of the high dollar.
In the past eight years, the EU has signed more than 30
trade agreements, it has 15 more in process, compared to just
two minor ones that the U.S. has signed. Now both the EU and
Japan are targeting Latin America, one of the largest markets
for U.S. goods and services. The U.S. needs to respond with
more trade agreements of its own.
Now, what can we exporters do about the high dollar? For
one thing, we can offer packages to offset the losses due to
high value of dollar; packages that include service agreements,
value-added services, software training, and follow-up visits.
America's foreign competitors are not nearly as good at
this as we are, but most of all U.S. exporters need to be able
to offer foreign buyers better financial terms. Giving buyers
more generous payment terms is a time-honored way to deal with
the price increases. Whether those increases are caused by
rising raw material costs, currency fluctuations or other
factors, but exporters, especially small exporters, cannot
offer financing on their own. Yet trade financing is hard for
us to obtain.
In contrast to Europe and Japan, and other Far Eastern
countries, most American banks are unfamiliar with the trade
financing. The relatively few banks that do offer it usually
seek only big businesses and large export transactions, and no
one is aggressively trying to change that. Small businesses--
SBA and Ex-Im do what they can, but export finance dealers that
extend beyond than six months are especially hard for small
exporters to obtain.
Chairman Manzullo. How are you doing on time there? You are
two minutes over?
Mr. George. I am over. I will be done--can I get one more
minute? Thirty seconds?
Chairman Manzullo. Yes, I want to conclude by 11 so do it
in 30 seconds.
Mr. George. Ex-Im is supposed to respond to this when it
occurs and meet those subsidies head on.
There are some good news, in the horizon. The Bush
administration's recent National Export Strategy Report calls
for several important initiatives. Most of all, it would
harmonize the government's many export promotion programs and
focus more on customer service for exporters.
Chairman Manzullo, SME Exporter Working Group has come up
with some good ideas too like developing partnership between
large exporter and domestic suppliers, and giving companies a
single government point of contact for all export-related
customs and needs.
So, yes, the high dollar has brought us serious problems,
but there are also some promising developments in the horizon.
Thank you for the opportunity.
[Mr. George's statement may be found in appendix.]
Ms. Velazquez. Thank you, is it Mr. Chimerine?
Mr. Chimerine. Right.
Ms. Velazquez. Okay. The trade deficit is financed by
foreign investment. Why are international investors still
investing in the U.S. if the manufacturing sector is having
trouble remaining competitive?
Mr. Chimerine. Well, I think there are two reasons. Number
one, the U.S. economy was outperforming every other economy
during the 1990s. Investments made in the U.S. economy were
generating a higher rate of return.
And secondly, interest rates have been higher in the United
States than in other parts of the world, so they are investing
here either to earn profits on their investments or interest on
their investments. For at least for the last 10 years or so
prospects were better in the United States in both cases, so I
think that's the biggest reason.
You know, the dollar has also been looked at as a safe
haven. It is the most--it is the safest currency, it is the
safest economy. But let me tell you, if we keep relying more
and more on foreign debt, you know, at some point they are
going to need their savings to invest in their own countries.
Ms. Velazquez. Okay.
Mr. Chimerine. You cannot depend on foreign investment
forever to flow into the United States like it did in the
nineties. And if we have big deficits at the same time, it will
create huge pressure on interest rates and hurt the U.S.
economy.
Ms. Velazquez. Thank you.
Mr. George, only one percent of all small businesses
export. Besides the overvaluation of the dollar, what else
limits United States small businesses that have marketable
products from becoming exporters?
Mr. George. One of the key things that I always thought to
be the problem is there are not enough American designs
overseas. The foreign competitors, especially from U.K. and in
Europe and Japan, they are very active in putting their designs
and specifications into these markets.
So when you have a project or an infrastructure project
designed around a certain specification, the products follow,
and I think that is the key drawbacks that I see when I travel.
There are not enough American designed projects overseas,
especially in the infrastructure.
So what we can do is on a proactive basis we can encourage
the design, engineering design firms, and the architectural
firms to be a little more proactive by helping them to
participate in international trade shows as well as meeting
clients face to face even before these projects are on the
drawing board. Then the products will follow and there will be
opportunities for small business exporters.
Ms. Velazquez. Would you like to comment on that?
Mr. Chimerine. Sure. I think there is another factor and I
think someone on the panel mentioned it earlier, and that is
the export financing and promotion programs in this country are
just a fraction of what most other countries have. It puts us
at a tremendous disadvantage, particularly for smaller
companies who need that kind of financing. The Ex-Im Bank is a
good example of that.
The trade deficit is a multi-dimensional problem. One of
them, in my opinion, is the export financing programs.
Ms. Velazquez. Thank you.
Mr. George, how receptive are commercial banks to small
exporters' needs for access to capital?
Mr. George. They are not very receptive, mostly because of
there are not enough dollars to support their involvement.
Ms. Velazquez. So what are the implications of an exporter
having to rely on the Ex-Im Bank and the SBA?
Mr. George. A lot of transactions die without seeing the
light of the day because there is not any banks involved in it.
Ms. Velazquez. In particular, what are the effects of the
lack of adequate medium-term loans for small business
exporters?
Mr. George. I did not hear that.
Ms. Velazquez. What are the effects of the lack of adequate
medium-term loans for small business exporters?
Mr. George. Because of lack of financing, people are
reluctant to get into exports. You know, we do not have an
export environment. We go and talk to the banks, and they will
ask you to give you three years worth of financial statements,
but it has to be transaction financing that we are looking for,
not the individual's worth or the company's worth.
Transaction financing is what we are missing.
Ms. Velazquez. Thank you.
Mr. Raimondo, do manufacturers experience any benefit at
all from the high value of the dollar?
Mr. Raimondo. From a manufacturing point of view, I would
say that all we have done, as I mentioned, we were at 15
percent, we thought we were going to go to 20 percent in the
1997 time period. All we have done is lost jobs and I cannot
think from a manufacturing company any value of a higher
dollar.
Ms. Velazquez. What about an increased ability to buy
foreign materials?
Mr. Raimondo. In our case, we are metal fabricator. We have
not pursued buying product overseas.
Ms. Velazquez. Any comment on this question?
Mr. Chimerine. Well, I think what happens is that, as you
suggest, some individual companies can now purchase materials
or components less expensively overseas. That may be good for
them, but it is not good for the country and the economy
because ordinarily they would be buying them in the United
States.
Chairman Manzullo. Okay, let us go to Mr. Akin.
Ms. Velazquez. Thank you.
Chairman Manzullo. Thank you.
Mr. Akin. Thank you, Mr. Chairman.
Just a question for anybody, if you had a magic wand, what
would you change?
A number of you have used the phrase that we have the
dollar may be artificially high in terms of foreign currency.
What would you do to change that? Is that the sort of thing
that we should basically put more money into the money supply?
Or how would you do that? Just one sentence from whoever wants
to answer that.
Mr. Chimerine. Well, I do not think you can do it with one
policy, but one of the things I think, looking back over the
last several years, that should have been changed is that we
should have been putting much more pressure on foreign
governments to stimulate their own economies instead of
adopting export-led growth strategies, and usually those
exports are targeted to our market.
I think if we would have had stronger economic growth in
foreign countries because of policies they implemented, not
only would that help our exporters sell into stronger markets,
but one of the reasons the dollar has been so strong is, you
know, is that most investors look at those economies and have
very little confidence in them.
So you would have had two things happen: stronger growth in
those countries, and probably stronger currencies overseas, and
our exporters would have benefited from both. I think that
pressure has to be put on foreign countries on a regular basis,
make it clear to them we are not going to accept, you know,
their strategies of exporting to the United States as their
only economic policy.
Mr. Akin. But from a practical point of view, what does
that mean you are going to do? Put some tariffs when they try
to export at a low cost, something that they have subsidized we
are going to put more tariffs on that? Or are you saying we
need to really push the--we should have been engaging in more
treaty negotiation earlier? What are you saying?
Mr. Chimerine. I think it is some of all of those. I am not
advocating tariffs, but one thing I believe is telling them, if
this keeps up, that we are going to intervene more in foreign
exchange markets, and we have got more resources than most of
them do, and if their policies are not aimed at stimulating
their own economies, but only to export to the United States,
keep their currencies undervalued to help them do that, we are
going to have to offset that, and one way is with foreign
exchange market intervention.
So I am not advocating direct tariffs, but there are things
we can do to make it more difficult for them, and to put more
pressure on them to look inside their own economies as a way of
bolstering those economies.
Mr. Akin. Thank you. Thank you, Mr. Chairman.
Chairman Manzullo. Mr. Baird.
Mr. Baird. Briefly, our nation is returning to deficit
spending. How do you anticipate that will impact the value of
the dollar and interest rates and foreign exchange?
Mr. Chimerine. I will take a crack at that.
I do not think in the short term it is that big of an issue
because the economy is very soft, and you would expect to have
fiscal deficits in the short term when you have a recession, or
just coming out of a recession. If anything, it would not have
bothered me to have some more short-term tax cuts, for example,
to stimulate the economy.
The issue is the longer term. Five years from now, if the
economy has recovered, and we have got big budget deficits
again like we had in the eighties and early nineties, I think
that would be counterproductive. It will put upward pressure on
our interest rates, which tends to attract more foreign
capital, which pushes up the value of the dollar. And it is the
smaller and middle-sized manufacturers and farmers who take it
in the neck when that happens.
Chairman Manzullo. Mr. Bartlett.
Mr. Bartlett. Thank you very much.
Dr. Chimerine, you mentioned that trade deficits do matter.
I have had a concern for a long while that these big trade
deficits, over $400 billion last year, that is more than a
billion dollars a day of trade deficit, at least to some
extent, represents wealth moving from this country to other
countries. Now, if what you are buying is a bridge that will be
here for a hundred years, and to some lesser extent, a car that
may be here 10 or 12 years, you may argue that it is not simply
a transfer of wealth. But if you look at our hundred plus
billion dollar trade deficit with China, if you think about
what you buy that is made in China, a big percent of that is on
the county landfill by the end of the year, is it not?
So to the extent that we are buying consumable goods, help
me understand why this big negative trade deficit is not a
problem or why I should not be concerned?
I am really concerned, and it was Mr. Weskamp who mentioned
the machine tools in defense. We cannot have the world's best
defense and best military without the best scientists,
mathematicians, and engineers, and without the best
manufacturing. But just help me understand from a simple
economic viewpoint why I should not be concerned about $400
billion trade deficits.
Mr. Chimerine. I cannot because I think you should be very
concerned about it since I am, and I think some of the problems
have been expressed very clearly by the panel this morning.
I mean, I do not think you can have a healthy economy in
the long term without a very vibrant manufacturing sector,
including smaller companies where a lot of the new innovations
come from. A lot of the increases in R&D, and new product
development, comes in manufacturing. It is our manufacturing
base that is essentially being put out of business. That is
essentially what that $400 billion trade deficit means.
It means our internationally-oriented companies--our
exporters and our companies that are competing with imports--
are getting hurt very, very badly. Their survival is at stake.
I think the U.S. economy will be much worse off if we do not
have a healthy industrial sector in the future, and that is
what we are talking about. It is a very serious issue, and I
think those economists or others who sort of poo-poo it, they
may have been right for awhile in the 1990s, but that was an
extraordinary set of circumstances where we had huge growth in
domestic demand. We are not going to have that again. As a
result, in both the short and long-term, our big trade deficit
and the fact that it is continuing to rise is a very serious
economic problem.
Mr. Bartlett. I have been concerned. I am not an economist,
but I was a producer of wealth. Is it not true that in our
society we have those who are consumers and those who are
producers of wealth?
I now regrettably am a consumer of wealth. I do not produce
wealth anymore in this job, but at one time I did do that as a
farmer, as a small businessperson building houses and so forth.
To me, I think that the only two segments of our society that
produce wealth are manufacturers and farmers. And you know, I
do not understand how we can maintain a viable economy if all
we are doing is providing service.
So if you push this to an absurdity and if all we do is cut
each other's hair, clearly that is not a viable economy. Now I
know that is pushing service-based economy to an absurdity. But
you know, should we not be concerned about the loss of
manufacture?
Mr. Chimerine. Yes, we should be very concerned about it
and that is my point. Again, you have heard this expression
from others, you know, computer chips or potato chips, what is
the difference, they are all chips. I think there is a big
difference. I do not think we can have as healthy an economy
only producing potato chips or hair cuts or other services. We
need a very balanced economy, led by a vibrant, strong
manufacturing base, because that is where a lot of the wealth
is created. That is where your highest paying jobs are created.
That is where much of our R&D and product innovation and
productivity comes from, and that is exactly the point.
And with a trade deficit of $400 billion, and rising,
largely because of the overvalued dollar, we are jeopardizing
manufacturing. We are seeing jobs lost there daily, and it is
not healthy for the U.S. economy. I agree with you completely.
Mr. Bartlett. I know that there are some in our society who
benefit from an overvalued dollar, but on balance I think that
the dollar, the value of the dollar, is best determined by
market forces, not by us or some other country artificially
manipulating where it is.
Chairman Manzullo. Would you yield?
Mr. Bartlett. Yes, sir.
Chairman Manzullo. What does the United States do when in
the past two weeks Japan has intervened four times to make sure
the yen does not get stronger?
Mr. Bartlett. What we ought to do, I think, is cry foul,
and we have not done that.
Chairman Manzullo. Besides crying foul?
Mr. Bartlett. Well, of course, two-thirds of all the U.S.
dollars, what are there, about $600 billion in circulation and
two-thirds of those are circulating outside our country, so
obviously the most force that can be brought to bear on the
value of the dollar is outside this country. We are fairly
limited because we have only about one-third of all the dollars
in circulation.
Mr. Chimerine. I am not sure the numbers are that dramatic,
but we have the resources to counter----
Mr. Bartlett. We have some resources and we are not using
them, that is true.
Mr. Chimerine. The leverage we have is the size of our
market, and the fact that most of those economies are very
dependent on the U.S. market. If the situation gets bad enough,
quite frankly, taking some measures in the short term to limit
their access into the U.S. economy might be in order, if they
continue to manipulate to gain advantages in foreign exchange
markets.
The foreign exchange market is simply not free. That is the
point. These currencies are deliberately being manipulated by
foreign governments, either by accumulating lots of dollars in
their domestic companies when the importers are selling off
dollars to raise their own currency to pay their workers. If
that was hitting the marketplace, the dollar would be nowhere
as strong as it is now.
And then secondly, if for some reason the dollar does
weaken, they run out there and intervene, and we have allowed
this to happen, in my opinion, for too long.
Mr. Bartlett. Thank you very much, Mr. Chairman.
Chairman Manzullo. Thank you.
I have several questions. Is there any violation of the WTO
or perhaps there should be when a country such as Japan
intervenes to make sure that its dollar does not change? I
mean, to me that is no different than a subsidy.
Anybody want to tackle that question? When Japan intervened
four times in the past couple of weeks.
Mr. Chimerine. I think one of the problems with the WTO,
and I am a very big supporter of it, and in the next trade
round, is that a lot of what we would call unfair trade
practices, such as currency manipulation, keeping markets
closed, false inspection requirements as a way of limiting
imports, all these things are generally not handled that well
in the WTO.
The WTO deals primarily with tariffs, reducing tariffs, but
it does not deal a lot with the unfair trade practice issues.
It is very hard, therefore, to take a case like this, where
Japan is intervening or anybody else is, or manipulating their
exchange rates any other way, take it to the WTO and expect to
get any relief. And part of that also is it takes years. The
damage is being done in the interim.
So, you know, I wish the international trade rules dealt
specifically with that issue. Right now they really do not, and
therefore I think we have to address the issue ourselves.
Chairman Manzullo. I mean, we could have all the hearings
we want and write all the books and everything, but when a
foreign government can simply intervene in order to keep its
currency weak, you know, that is a subsidy. I mean, you would
think that there could be an action, a 201 action brought
against the country as a whole, and as for countervailing
duties in that particular situation.
Mr. Raimondo. Mr. Chairman.
Chairman Manzullo. Yes.
Mr. Raimondo. I have gotten feedback that it is a violation
of the IMF, International Monetary Fund agreement, and it would
be very good to talk to Treasury about that.
Chairman Manzullo. Well, that would, but, you know, we are
not dealing with the IMF money. That is only the countries that
you dump it into, such as when we dumped money into Russia and
then Brazil, and in South Korea, with particular nations on
that, but that is an interesting aspect of it.
Here we are getting beat up internationally and there is
nothing we can do about it. So somewhere along the line we have
to do something.
Let me ask, Doctor, when was the last time the United
States intervened in the foreign exchange market?
Mr. Chimerine. Gosh, I would have to look back, Mr.
Chairman. We did it aggressively with cooperation of other
governments, as you know, in the 1980s when the dollar reached
levels similar to where it is now. There was the Plaza Accord,
you might remember.
Chairman Manzullo. That was the rubber room that Reagan put
people into?
Mr. Chimerine. I think on a selective basis we may have
done some intervening in the 1990s. I just do not remember.
Ms. Velazuez. It was 1985.
Mr. Chimerine. Excuse me?
Ms. Velazuez. 1985.
Mr. Chimerine. 1985.
That was the last time we engaged in really aggressive
intervention to bring down--at that time it was an overvalued
dollar similar to where it is right now, and it was led by the
United States, and we sort of forced other countries to go
along with us, and that kind of approach would be in order
right now again, in my judgment.
Chairman Manzullo. Well, we would have to convince the
Secretary of the Treasury and the president that would be in
the best interest.
Mr. Chimerine. I think the Secretary of the Treasury,
irregardless of what he might say publicly, deep down knows
that you cannot put our manufacturers at a 25 and 30 percent
disadvantage and expect them to do well.
Chairman Manzullo. Let me follow up on that. We had a
meeting with the Secretary of Commerce yesterday. The area that
I represent, Rockford, Illinois, Ingersoll used to have close
to 3,000 employees. And it is being hammered by a number of
forces. It will be under 500 probably within the next year, and
that is the high price of steel.
And Mr. Raimondo, you deal obviously in buying steel for
your products. What are you experiencing in terms of increases
in the price of steel?
Mr. Raimondo. On a personal basis our company is
experiencing 15 to 30 percent price increases in the last four
months. It is an absolute nightmare.
Chairman Manzullo. And in fact we met with the Secretary of
Commerce, and small businesses are getting no relief. They are
getting zero relief based upon what is obviously a political
move that is hurting immeasurable the small business people.
I do not know how the small manufacturers in this country
can hang on with that steel policy. I am going to be doing a
series of special orders. I am going to be making a lot of
noise, a tremendous amount of noise about what is going on to
the small manufacturing companies that are--in fact, the larger
ones too. They are getting hit big time by these increases, and
the steel that you use, is that a common steel? It is not a
specialty steel?
Mr. Raimondo. Yes, we use a variety of mostly common steel
both hot-rolled and cold-rolled. And as an independent
individual of a company, I would sure like to participate
because in the environment we have where pricing powers are in
the big retails, in the small and medium-sized manufacturers
are having a really extremely difficult time. When you stack up
the dollar and now the steel increases in the 20 and 30 percent
ranges, it is a tremendous squeeze, Mr. Chairman.
Chairman Manzullo. And the steel that you are buying, do
you know if it is manufactured domestically or internationally?
I presume you buy it from a broker?
Mr. Raimondo. No. Actually, the majority of what we buy is
from the large mills, the U.S. Steels, the National Steels, the
Bethlehem Steels, and course we buy a substantial amount from
the mini-mills, Nucor and what have you.
Chairman Manzullo. Okay, so you are buying directly, and
you said 15 to 30 percent?
Mr. Raimondo. Depending on the type of steel, yes, 15 to 30
percent.
Chairman Manzullo. Okay. Mr. Weskamp, you are involved in
manufacturing also?
Mr. Weskamp. Yes, Mr. Chairman.
Chairman Manzullo. Is this affecting you?
Mr. Weskamp. To a lesser extent. Really what affects us
predominantly is not the cost of raw materials, it is more an
issue of pricing and business volumes, offshore competition.
The difference that we find in pricing is such that it is
driven not by one component of raw material content in a
project. We have been involved in on-line bidding with foreign
competition, and just to see how far it would go we went down
to our cost, and we are still underbid by over five percent.
And a typical margin we work on is 25 to 30 percent. We dropped
30 percent. That is not the cost of raw material. There is
something else going on, and it is more dollar-based.
Chairman Manzullo. Mr. Raimondo, you build, is it
agricultural silos? Is that it?
Mr. Raimondo. Yes, grain bins that are called silos
overseas. We also do pre-engineered metal buildings that we
export overseas.
Chairman Manzullo. Okay. If it cost you a dollar to
manufacture, you know, one unit, how much of that dollar is
represented by the cost of your steel?
Mr. Raimondo. Fifty percent, sir.
Chairman Manzullo. Fifty percent.
Mr. Maimondo. In the case of the grain--that is in the
buildings. The grain bins is 60 percent plus.
Chairman Manzullo. So you are being hit really hard on it.
Mr. Maimondo. Very hard.
Chairman Manzullo. Now there is something the American
government can do about the price of steel. That is not
theoretical. I am looking at the economist over there and he
says theoretical. You know, we deal in theories because it is
very difficult on the issue of the high dollar.
But would you all agree that the price of steel is
something the administration can do something about?
Mr. Maimondo. They already have, just the wrong way.
Chairman Manzullo. They went the wrong way on it.
Do you have, Mr. Raimondo, in your business, you stated
that you did not have a foreign competitor that makes that type
of grain bin, is that correct?
Mr. Maimondo. No, we do have foreign competitors.
Chairman Manzullo. Oh, you do?
Mr. Maimondo. Yes, we do.
Chairman Manzullo. Okay.
Mr. Maimondo. Yes, we do. We had a project in Algeria that
we won this last winter before the steel price increases, but
we just know with the dollar we priced it so it would be at a
break even winter project, a $2 million project in Algeria. We
beat out the Italians and the French.
Chairman Manzullo. Okay.
Mr. Maimondo. And I suspect next year--we survived the
dollar by basically not having profit. And with the steel
situation, we will not even be in that competition next year.
Chairman Manzullo. Is there an overseas competitor that
actually builds grain bins in the United States?
Mr. Maimondo. No, sir.
Chairman Manzullo. Okay.
Mr. Maimondo. They build them in Italy, in Spain and in
France.
Chairman Manzullo. Okay. Mrs. Velazquez, do you have any
further questions?
Ms. Velazquez. No, I do not.
Chairman Manzullo. Okay. I do have another question.
We have been working on this for some time and the 7(a)
loan rate that has been fixed, which we believe is too high.
One of the things that we have noticed and we held an informal
round table on the high cost of capital, one of the theories
that is used to bring down a strong dollar is to decrease
interest rates. That is--interest rates have been decreased as
far as you can, but that decrease is not being passed on to the
American manufacturer.
Anybody want to comment on that?
Mr. Maimondo. We find that at the NAM to be absolutely
true. We have plotted that. In fact, this last week it showed
the deterioration in the Wall Street Journal of the banking
loans to small and medium-sized manufacturers and business in
total, and if they do, they raise the interest rates and put
you in a different class, which they do a lot, they simply have
been rejecting major industry segments like the printing
industry or like the building industry where the banks just
have decided they do not want to participate in those
industries, in this type of economy. They have really tightened
up their portfolios.
Chairman Manzullo. Mr. Dollar, I have been talking to my
farmers back home. We have a very large agricultural community.
In fact, we have three potato chip factories, and we also have
Honeywell that makes micro chips.
So one, you can work at Honeywell in order to earn enough
money to buy the potato chips, so it's chips equals chips.
But what we have been hearing from the folks at the Farm
Bureau, and my wife and I have a small cattle operation
ourselves, is that the increase in the cost of implements,
farming equipment as a result of the increase in steel prices.
Have you been talking to your colleagues? If you are lucky
enough to be in a position to buy new equipment, have you been
hearing those rumors coming through about any increases in the
cost of new farm equipment?
Mr. Dollar. No, we do not think it is rumors. We think it
is reality, and everybody is hanging on.
Chairman Manzullo. Could you bring the microphone closer to
you? The other microphone, okay.
Mr. Dollar. We do not think it is rumor. We think it is
reality. Prices are up for everything except what you are
getting out of your commodity. It cannot continue. The
equipment is getting older and older, and I do not know whether
steel is the total cost or not, but it has added cost, and
there is nothing. You are just living off the past. You are
using up all of your surplus, you are using up assets, and our
farmers are in a lot of trouble, and I really--we talk about,
you know, a level playing field. We can produce with anybody.
But when your commodities as of today are depressing prices of
some 50, 60, 70 years ago, there is just no way you can
continue going this way. We are in trouble.
Chairman Manzullo. I guess this would not apply to you so
much, Mr. Dollar, but to those who are involved in
manufacturing, do you know of any company in the United States,
because I am starting to see this back home, Rockford, Illinois
is a city of 150,000. It has 1,000 factories. It led the nation
in unemployment in 1981 at 25.9 percent. We have about a 33
percent manufacturing base as opposed to about an 18 percent
manufacturing base.
And one of the problems that we encountered when I spoke
before the International Trade Commission a few weeks ago on
a--what was it--on a 332 petition, section 332 petition, which
is to measure the impact of Chinese imports on the tool and dye
industry and the molding industry, is the fact that the Bureau
of Labor Statistics, our own Federal Government that keeps
track of data does not understand manufacturing. They listed
Rockford, which is the tool and dye center of the world, as
having only 570 employees directly related to the tool and dye
industry, and there are probably 570 factories. They are small
factories that are involved in that.
And I think a challenge to NAM, to AMT and the other
organization is we have to do a massive education system to the
federal government.
We had Dr. Ferguson here a few weeks ago who is just
beneath Dr. Greenspan, and we queried him about--we had a
hearing on the rumors out to increase interest rates, which is
wonderful. Now there is a rumor out to increase minimum wage.
It is just wonderful the things that are happening to the small
businesspeople in this country. And we have a tremendous
respect for Dr. Ferguson. He is a great American.
And he said that the manufacturing segment is only one of
the indicators. And I said, Doctor, have you ever had the feel
of machine oil on your hands, or smelt the odor, smelt the odor
of machine oil. He said, no, he said, but invite me to your
district and I will be there. And we are trying to get him to
come out because we really believe that one of the reasons
manufacturing in this country has taken such a hit is that the
people making the decisions do not understand the nature of
manufacturing.
When your own--when the Federal Government says only 550
jobs in Rockford, Illinois are related to the tool and dye
industry, there is a huge disconnect. There is a total lack of
information, and as a result of that when people say, well,
only 550 jobs are affected, we estimated somewhere directly
between 10,000 and 15,000 jobs. I know because I hear from
those guys almost daily as to what is going on.
Well, this has been a very interesting hearing. Mrs.
Velazquez, did you have any concluding remarks?
Ms. Velazquez. No, thank you, Mr. Chairman.
Chairman Manzullo. Thank you for participating.
Ms. Velazquez. Mr. Chairman, I would ask unanimous consent
for my opening remarks to be entered into the record.
[Ms. Velazquez's statement may be found in appendix.]
Chairman Manzullo. Without objection that shall be done.
We want to thank you for coming. We want to hear from you
other than at these hearings. If you know of a company that is
closing shop because of the high dollar and the high price of
steel, let us know about it immediately. If you know of a
company that is doing that and moving its operations to China,
let us know about that also because that means that the very
policies that our government is trying to prevent, they are
actually causing because of lack of intervention of the dollar
and the whole scenario that is being painted with regard to the
tariffs and steel.
Thank you for coming. This hearing is adjourned.
[Whereupon, at 11:10 a.m., the Committee was adjourned.]
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