[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                   S. Hrg. 102-000 deg.

THE EFFECT OF FOREIGN CURRENCY MANIPULATION ON SMALL MANUFACTURERS AND 
                               EXPORTERS

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, JUNE 25, 2003

                               __________

                           Serial No. 108-21

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Bergsten, Fred, Institute for International Economics............     4
Blecker, Robert A., American University..........................     6
Yagle, Steve, Reliable Machine Company...........................     8
Bender, Jay, National Association of Manufacturers...............    10
Jones, George III, American Forest & Paper Association...........    12
Tashjian, Edward M., American Furniture Manufacturers Association    14
Freedenberg, Dr. Paul, The Association for Manufacturing 
  Technology.....................................................    16
Johnson, Cass, American Textile Manufacturers Institute..........    18

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    30
Prepared statements:
    Bergsten, Fred...............................................    33
    Blecker, Robert A............................................    40
    Yagle, Steve.................................................    72
    Bender, Jay..................................................    74
    Jones, George III............................................    79
    Tashjian, Edward M...........................................    84
    Freedenberg, Dr. Paul........................................    90
    Johnson, Cass................................................    98

                                 (iii)

 
THE EFFECT OF FOREIGN CURRENCY MANIPULATION ON SMALL MANUFACTURERS AND 
                               EXPORTERS

                              ----------                              


                        WEDNESDAY, JUNE 25, 2003

                  House of Representatives,
                                Committee on Small Business
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 2:09 p.m. in Room 
2360, Rayburn House Office Building, Hon. Donald Manzullo 
[Chairman of the Committee] presiding.
    Present: Representatives Manzullo, Chabot, Graves, Schrock, 
Beauprez, McCotter, Velazquez, Napolitano, Bordallo, Majette 
and Sanchez.
    Chairman Manzullo. Good afternoon, and welcome to this 
hearing of the Committee on Small Business. Especially welcome 
to those who have come some distance to participate and attend 
this hearing.
    Last June, we looked at the effect the overvalued dollar 
had on our manufacturers and exporters. A year later the dollar 
has declined measurably, but not significantly against Asian 
currencies. We do appreciate Treasury Secretary Snow's 
redefinition of a strong dollar. It has immensely helped many 
manufacturers as they compete with Europe and Canada.
    The currency overvaluation problem remains primarily with 
most of Asia. The U.S. manufacturing base was the hardest hit 
by this recession. The U.S. has lost over 2.7 million 
manufacturing jobs. For 34 straight months, the United States 
has lost manufacturing jobs. In the past 12 months, it has 
averaged 53,000 manufacturing jobs per month. I want you to 
think about that.
    The 16th District of Illinois, which I represent, has been 
severely hurt by the downturn in manufacturing. Plants have 
been closed. People have been put out of work. Ingersoll 
Milling & Machine Company has been the latest company in 
Rockford to declare bankruptcy.
    During this period, our Asian trading partners have 
implemented a strategy of currency undervaluation in order to 
gain a competitive advantage for their experts by making them 
cheaper. It is estimated that the actions by China, Taiwan, 
South Korea and Japan have essentially given their exporters a 
20 to 40 percent reduction. This in turn acts as a tax by the 
same percentage on U.S. manufacturers and exporters.
    Since 1949, the Chinese government has kept its currency 
pegged at 8.21 yuan to the dollar. I am sorry. Since 1994. 
China has experienced economic growth, gains in productivity, a 
large export sector and increased foreign investment, all 
factors that would cause its currency to appreciate if it were 
allowed to freely move. It is estimated by many economists that 
the yuan is undervalued by as much as 40 percent.
    Japan has systematically intervened in the currency markets 
to reduce the value of their yuan. Manipulation of exchange 
rates for the purpose of achieving an unfair competitive 
advantage is illegal under international protocols. This 
manipulation of the currency market costs U.S. jobs.
    Trade is vitally important to this country and was part of 
the reason for the economic expansion of the 1990s. It is also 
critically important to the small business sector. Small 
businesses export their goods overseas, and currency 
manipulation has squeezed their profit margins from those least 
able to absorb it.
    The competitiveness abroad has dramatically decreased 
because of currency fluctuations and exchange rates that affect 
their prices. The impact has not just been felt abroad. The 
overvalued dollar has caused the U.S. to be flooded with cheap 
imports. Import penetration has caused domestic manufacturers 
to lose market share against foreign products that have a 
temporary price advantage.
    The effect of this interference is to artificially inflate 
the dollar in a blatant attempt to manipulate the market. The 
market needs to be determined at a currency rate value. 
Government intervention only skews the market and invites 
artificial rates that are not reflective of reality. We need to 
insure that U.S. firms have a level playing field in the global 
market and not be at a competitive disadvantage.
    [Mr. Manzullo's statement may be found in the appendix.]
    Chairman Manzullo. I now yield for an opening statement by 
my good friend and colleague, the Ranking Member, Mrs. 
Velazquez of New York.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Today, the increasing number of imports/exports crossing 
over our borders illustrate the dominance of the international 
trade market in the global economy. While many factors affect 
our ability to participate in the new global economy, exchange 
rates play a crucial role. The value of the country's dollar 
determines its competitiveness within the international market. 
A weak dollar can make a nation's products cheaper in foreign 
markets and foreign products more expensive domestically, 
therefore, benefiting exporters.
    Just the opposite is true for the strong dollar. Products 
become more expensive abroad, and foreign products are cheaper 
domestically. Unfortunately, U.S. manufacturers have recently 
been suffering from these effects, therefore making it more 
difficult for the U.S. to successfully compete in markets 
overseas.
    Sadly, over 2,000,000 manufacturing jobs have been lost 
over the last few years, and U.S. exports across the Atlantic 
have fallen by $17.6 billion, accounting for half of the total 
decline in exports. On top of this, our manufacturers are 
struggling with a huge surge in imports, and U.S. economists 
predict the market share for market share for imports to 
increase even further in 2003.
    The effects have been detrimental to U.S. exporters and 
small business. Small business dominates the international 
commerce, accounting for 97 percent of all U.S. exporters. The 
U.S. manufacturing sector and exporters are the ones who bear 
the brunt of the nation's overvalued dollar. While the dollar 
has, fortunately, begun to weaken among most major currencies, 
it still has not depreciated as much as it should have.
    One of the major contributors to this problem has been the 
exchange rate policies of some of our trading partners who 
manipulate currency for competitive purposes. Among these 
countries are China and Japan. China's current fixed rate has 
created significant hardships for U.S. manufacturers and 
exporters. Despite China's substantial economic growth, its 
exchange rate remains the same as it did when it was set in 
1995.
    Many economists estimate that China's currency is 
undervalued by 40 percent. This has contributed to our nation's 
large trade deficit and the relocation of thousands of U.S. 
jobs to foreign countries. In addition, Japan, who operates on 
the floating exchange rate, frequently intervenes in the 
foreign exchange markets, weakening Japan's yen against the 
U.S. dollar.
    The exchange rate practices of these two countries has put 
U.S. manufacturers and exporters at a clear disadvantage. 
However, while pointing out that these policies are creating 
hardship for their success, many U.S. corporations are 
relocating affiliates to these countries in order to take 
advantage of the low costs. By using these foreign locations 
versus U.S. exports to deliver the products to foreign markets 
and setting up export facilities in China, these businesses 
play into the growing trade deficit. This results in the loss 
of U.S. jobs. It is fair to say that they may be contributing 
to the problem, too.
    As the foreign trade market continues to grow and expand, 
it is crucial that we do all we can to protect our nation's 
exporters and manufacturers. Actions such as Secretary Snow's 
recent support for the market based floating exchange rate for 
China are a step in the right direction. We must continue to 
engage these countries in an effort to prevent them from 
manipulating these policies.
    The U.S. cannot afford to lose out on the benefits of the 
new global economy, but our manufacturers cannot afford to 
continue carrying the weight of these unfair policies. The 
prosperity and success of not only the U.S., but also of its 
trading partners, depend on fair policies that seek to balance 
the needs of our country with our leading role in the world 
economy.
    Thank you, Mr. Chairman.
    [Ms. Velazquez's statement may be found in the appendix.]
    Chairman Manzullo. Thank you. Before we get to our 
witnesses, we welcome the newest Member of the Small Business 
Committee, Thaddeus McCotter from Michigan.
    Thaddeus, why not take 90 seconds and tell us about 
yourself. You can get your name out in 90 seconds.
    Mr. McCotter. Yes. Thaddeus McCotter, Michigan 11. Mr. 
Chairman, Members of the Committee, I say to you the same thing 
I said to my wife on our twelfth wedding anniversary. I am just 
happy to be here. Thank you.
    Chairman Manzullo. And we are glad that you are here. That 
is pretty brief.
    The rules are there is a light in the middle of the table, 
and when it is green you are fine, when it is yellow you are on 
thin ice, and when it is red you have fallen through the ice. 
We will ask if you could follow that. You do not have to read 
word for word. The statements of all the witnesses will be made 
part of the record.
    Anybody else who wants to make a statement made part of the 
record here are the rules. It cannot exceed two pages in single 
type. It has to be at least 10 point type. No attachments or 
anything because these are printed at government expense. If 
you want to have anything put into the record just get it to 
our staff, and we will be all set here. Staff will take care of 
it.
    Our first witness is Fred Bergsten, Director, Institute for 
International Economics. We look forward to your testimony.
    You might have to pull that mike up a little bit closer 
there.

      STATEMENT OF FRED BERGSTEN, DIRECTOR, INSTITUTE FOR 
                    INTERNATIONAL ECONOMICS

    Mr. Bergsten. Thank you, Mr. Chairman. I thought my 
comparative advantage, since you have lots of experts that will 
tell you about the plight of small business with the dollar, is 
to lay out the overall situation and suggest some policy 
changes that might help deal with them.
    The facts first. From 1995 until about 16 months ago, the 
dollar rose by a trade weighted average of 35 to 50 percent, 
depending what index you used. The rule of thumb is that every 
one percent rise in the average exchange rate of the dollar 
leads to an increase in our trade deficit of about $10 billion 
with a two-year lag, so a rise of 40 percent or so in the 
dollar explains the great bulk of our existing trade and 
current account deficits of $500 billion and rising rapidly.
    This, incidentally, comes on top of a net foreign debt 
position of the United States that has already hit $3 trillion 
and is rising very rapidly. To finance our current account 
deficit and our own foreign investments, we have to import $4 
billion of foreign capital every working day. It is clearly a 
unsustainable situation.
    Fact two. As a result, I believe, the dollar has, 
therefore, begun to come down as you mentioned. Over the last 
16 or 17 months, it has come down, but by a trade weighted 
average of only 10 to 20 percent depending on again what index 
you use, so the run up of the previous six and a half year bull 
market in the dollar, the reversal has only accounted to 
something like one-third to at most one-half of the earlier run 
up.
    There have been no noticeable adverse effects of that 
dollar decline on the U.S. Inflation is at very low levels. 
Interest rates are at 50 year lows. It has been very smooth, 
very gradual, very orderly, i.e., those who feared a decline of 
the dollar have nothing to worry about. However, as I say, it 
has only gone one-third to one-half of the previous run up.
    Now, at my institute we do extensive analysis of all this, 
and we have concluded that the U.S. current account deficit, to 
be sustainable, would have to be cut in about half from where 
it is now. Instead of $500 billion to $600 billion, $250 
billion to $300 billion. That is still a big deficit. We think 
that would be sustainable, but that would require a decline of 
the dollar of 25 to 30 percent from where it started, again 
leading to the conclusion that it has only come down by about 
one-half what is needed.
    I want to leave you with conclusion number one. The current 
account deficit needs to be cut in half. The dollar exchange 
rate is moving in the right direction, but it has only gone 
about halfway.
    The other crucial point is that the decline of the dollar 
so far has been very unbalanced. The dollar has come down 30 to 
40 percent against the euro, only 15 percent against the yen, 
zero against the Chinese renminbi, so it has been quite 
unbalanced, and one could expect the Europeans to start 
screaming, and rightly so, if that pattern continued in the 
second half of the dollar decline.
    My punch line, therefore, is that not only does the dollar 
have to go down another 10 or 15 percent on average, but the 
composition needs to change. It needs to come down particularly 
against the Asian currencies of which the two most important 
are the Japanese yen and the Chinese renminbi.
    Now the problem with Japan, as you mentioned, is that they 
are resisting the necessary adjustment very vigorously. They 
put, depending how you define it, $33 billion to $43 billion of 
intervention into the market in the month of May alone to keep 
the yen from rising further and contributing to the adjustment.
    I asked one of my close Japanese friends, the former Vice 
Minister of Finance, ``Mr. Yen,'' Eisuke Sakakibara, last week 
where he thought the yen would be in the absence of that 
intervention. He said at least 10 yen higher, 10 percent 
higher, closer to 100, which is the eventual level that I think 
it needs to rise to. There is a lot of debate as to whether 
this Japanese intervention is effective. Mr. Yen thinks it has 
been. I think it has been. I would leave that for you.
    Secretary Snow has been very clear. Every statement he has 
made indicates the exchange rate should be set by the market. 
The huge Japanese intervention obviously distorts that, so my 
suggestion to the Secretary is that he should tell the Japanese 
that in the future for every dollar they buy to keep the dollar 
strong he should tell them he will sell a dollar to offset it, 
to neutralize the intervention's effect and thereby to revert 
the exchange rate outcome to the market, which is his stated 
policy.
    There is even a theory called the theory of the second best 
in economics that says when there is one governmental 
distortion that distorts a market a second governmental 
intervention to offset that is theoretically called for and 
justified, so I would suggest offsetting U.S. intervention to 
make sure the rate is set by the market.
    I believe, frankly, that if we let the Japanese know we 
were contemplating that they would cease and desist, the yen 
would rise, and that part of the adjustment would be supported.
    The second big issue is the Chinese currency.
    Chairman Manzullo. You have a red light there, Fred.
    Mr. Bergsten. Can I give you one more minute?
    Chairman Manzullo. Okay.
    Mr. Bergsten. The Chinese peg to the dollar is important 
not only because it averts adjustment vis-a-vis China itself, 
but because I believe it blocks currency adjustment in the rest 
of Asia.
    The reason is that all the Asian countries fear competition 
from China above everything else, but if the Chinese currency 
is riding the dollar down as the dollar declines, China is 
becoming even more competitive, worsening the situation and 
making it even harder for Korea, Taiwan, even Japan, to let 
their currencies go up and accept adjustment against those, so 
the Chinese fix is of crucial importance not just for China, 
but for the whole region.
    Therefore, Secretary Snow again has said the right thing. 
China should let the currency appreciate. I believe that is 
crucial. That should be the second key pillar of our policy 
going forward to achieve both the rest of the needed adjustment 
and do so in a balanced and, therefore, much more feasible way.
    Thank you.
    Chairman Manzullo. Thank you.
    [Mr. Bergsten's statement may be found in the appendix.]
    Chairman Manzullo. Our next witness is Dr. Robert Blecker, 
Professor of Economics at my alma mater, American University, 
and a research associate at the Economic Policy Institute.
    You did not know that, did you?
    Mr. Blecker. No, I did not.
    Chairman Manzullo. Yes. Are you not impressed?
    Mr. Blecker. It is good to be before your Committee.
    Chairman Manzullo. There you are. Good to be here. We look 
forward to your testimony.

    STATEMENT OF ROBERT A. BLECKER, PROFESSOR OF ECONOMICS, 
 AMERICAN UNIVERSITY, AND RESEARCH ASSOCIATE, ECONOMIC POLICY 
                           INSTITUTE

    Mr. Blecker. Thank you very much, Mr. Chairman and Members 
of the Committee. I do appreciate the invitation to testify 
here.
    Chairman Manzullo. Could you pull the mike closer to you?
    Mr. Blecker. I do appreciate the invitation to testify here 
this afternoon.
    Mr. Chairman, there has been much attention in the last few 
months to the falling value of the dollar. However, while 
attention has been focused on the dollar's fall relative to the 
euro and a few other major currencies, less attention has been 
paid to the fact that the dollar has fallen much less or not at 
all compared with many other currencies of our other important 
trading partners.
    Especially, the dollar has not fallen nearly as much 
relative to the Japanese yen and has a fixed or managed 
exchange rate with the Chinese renminbi, the Taiwanese dollar 
and certain other Asian currencies due to the currency 
manipulation practiced by their governments. As a result, the 
dollar has not fallen nearly enough overall to undo the damage 
caused by its overvaluation for the past several years.
    According to my statistical estimates, the rise in the 
dollar up to 2002 caused the following damage: First, a loss of 
three-quarters of a million U.S. manufacturing jobs; second, a 
decline in profits on U.S. manufacturing operations of about 
$100 billion per year; and, third, a reduction in capital 
expenditures at U.S. manufacturing plants of over $40 billion 
at an annual rate and, second, as Fred Bergsten has already 
testified, a major contribution to the enormous U.S. trade 
deficit.
    Although my statistical analysis does not distinguish U.S. 
manufacturing businesses by size, I believe that small 
businesses are likely to be disproportionately hurt by the 
overvalued dollar because small businesses tend to be less 
multinational in scope and, hence, have less of an ability to 
produce or source products overseas. If small businesses do 
shift production or outsource abroad as they are often forced 
to in this currency environment, the result is still a loss of 
American jobs that can devastate local communities.
    Furthermore, the fact that the high dollar has led American 
manufacturers to cut back their investment spending portends 
slower growth and reduced technological innovation in these 
industries in the future.
    For all these reasons, the recent decline in the dollar to 
a more reasonable level relative to the euro, the British 
pound, the Canadian dollar and a few other currencies gives a 
ray of hope for the U.S. manufacturing sector to begin a 
recovery. However, this ray of hope is significantly dimmed by 
the partial nature of the dollar's decline to date.
    The countries that have let their currencies rise the most, 
chiefly the Europeans and Canadians, account for less than half 
of U.S. trade overall and much less than half of our trade 
deficit. Even in regard to those currencies, the dollar has 
lost only part of the value it gained between 1995 and 2002. 
However, the situation is worse with Japan and other East Asian 
countries that actively manipulate their currency values, yet 
account for more than half of the U.S. trade deficit.
    The dollar has fallen only about 12 percent versus the yen 
since February 2002, compared with about 27 percent versus the 
euro. China, Taiwan and many other developing nations maintain 
pegged exchange rates, thus preventing their currencies from 
rising to market determined levels.
    The major East Asian countries have amassed reserves of 
well over $1 trillion U.S. dollars in their efforts to keep 
their own currencies undervalued and maintain artificial 
competitive advantages in the U.S. market. Such intervention 
has grown in intensity in the past few months as the dollar has 
fallen relative to the other currencies.
    In response to these policies, the United States needs to 
take strong measures to pressure our leading trading partners 
in East Asia to abandon their currency manipulation and allow 
their currencies to rise to market levels. The Secretary of the 
Treasury should use his authority under U.S. law to investigate 
foreign currency manipulation and negotiate with trading 
partners that obtain chronic trade surpluses with us by 
undervaluing their currencies.
    I believe we also need to make the maintenance of realistic 
equilibrium exchange rates a condition for trade liberalization 
and market opening agreements. I would urge that all future 
trade agreements include prohibitions on currency manipulation 
and that this issue be given a priority role in future trade 
negotiations such as in the WTO and proposed FTAA.
    Of course, the United States should not be indifferent to 
the fact that rising currency values can threaten economic 
prosperity in other countries, but the right solution to this 
problem is to encourage our trading partners to stimulate their 
own domestic economies rather than to keep the dollar 
overvalued and let them achieve export led growth at our 
expense.
    Thank you very much, and I would be happy to answer any 
questions.
    Chairman Manzullo. Thank you.
    [Mr. Blecker's statement may be found in the appendix.]
    Chairman Manzullo. Our next witness is Steve Yagle. Steve 
is president of Reliable Machine. He is my constituent and 
comes from Rockford, Illinois. I have known him since he was 
about 14 or 15. He has grown up.
    Steve represents the Rockford Area Chamber of Commerce 
Manufacturing Council and the 250 manufacturers that are part 
of the Chamber's membership, as well as the 1,200 manufacturers 
in the four county region of Winnebago, Boone, Ogle and 
Stephenson Counties in northwest Illinois. We look forward to 
your testimony.

 STATEMENT OF STEVE YAGLE, PRESIDENT, RELIABLE MACHINE COMPANY

    Mr. Yagle. Thank you, Mr. Chairman and Members of this 
distinguished Committee. I am pleased to be here to testify 
before you today, and I thank you for the opportunity to 
discuss issues relating to trade with Asia. I applaud your 
efforts to gather information and data regarding currency 
valuation.
    Again, my name is Steve Yagle. I am president of Reliable 
Machine Company in Rockford, Illinois. We employ 50 hardworking 
individuals, and we consider ourselves a neighborhood 
manufacturer. I am here today representing the Rockford Area 
Chamber of Commerce, which I am the chairman of the 
Manufacturing Council, and 250 manufacturers that are part of 
the Chamber's membership, as well as 1,200 manufacturers in the 
four-county region of Winnebago, Boone, Ogle and Stephenson 
Counties in north-central Illinois.
    Even as we battle to reduce our costs and to keep our 
skilled employment base, we are faced with challenges from our 
global competitors. Today, I am here to discuss the effect of 
Asia's practice of currency valuation and its effect on 
manufacturers in our region.
    The Chinese Government manipulates the value of its 
currency to maintain a trade advantage over American companies. 
This artificially lowers the prices of Chinese goods in the 
U.S., allowing foreign competitors an unfair advantage in the 
U.S. market. This practice has placed Rockford area 
manufacturers at a serious disadvantage, and unless these 
trends are reversed more damage will be done to the livelihoods 
of the Rockford area working families and to the nation's 
economy.
    From 1998 through 2002, the Rockford area lost more than 
8,000 manufacturing jobs. Currently, the City of Rockford 
unemployment rate exceeds 10 percent, while the rate in 
Illinois is 6.2 percent, and the U.S. rate is 5.5 percent. Our 
region can no longer afford to continue losing manufacturing 
jobs.
    An Illinois Manufacturing Extension Center study reported 
that over 60 percent of those surveyed are experiencing 
competition from China and have lost market share. Moreover, 46 
percent of all Respondents said they expected competition from 
China to reduce their sales by an average of about 16 percent 
in 2003, with more losses expected in the next few years. All 
are losing sales overseas or find they can no longer compete 
against Chinese imports into the U.S. market.
    Many of the manufacturers are reducing their work forces. 
Others say they will close their plants. Bill Orman, who is the 
president of Rockford Fastener, a long-time family business, 
predicts large numbers of small and mid-size Rockford area 
manufacturers will be closing down permanently due to foreign 
competition as orders in his industry have shrunk from millions 
of pieces per order to 50,000 to 60,000 pieces.
    Rockford Products, another fastener manufacturer, is 
sourcing some parts from Asia to remain competitive. These 
parts were once manufactured in Rockford. In fact, the Rockford 
area was once the largest geographic area for fastener 
manufacturing in the world. Today, China holds that 
distinction.
    My own business was affected when a business opportunity 
worth up to $750,000 annually, which would have created jobs in 
my factory, tax revenue for local, state and federal 
governments, vanished as a big box retailer decided to source 
product in China instead of Rockford and Wisconsin. My company 
will survive. My potential customer, a father and son business 
of 30 years, will most likely be bankrupt by the end of this 
year.
    I have a question. As manufacturing jobs continue to 
disappear, what is going to take their place?
    Also, weakness in the manufacturing sector hurts the 
service sector. The loss of high paying manufacturing jobs 
translates into lower sales for businesses of all types. Wealth 
is created when we manufacture goods. United States 
manufacturers are the most efficient on the globe. We offer 
world class benefits to our employees. We invest in the newest 
and best safety features. We are responsible to our 
environment, and we take responsibility for the products that 
we produce.
    What we are asking for is a level playing field with fair 
trade. Manufacturers in the Rockford area can compete in price, 
quality, on time delivery and service with any competitor in 
the world.
    As you consider the situation that American manufacturers 
face, please consider these options. We must enforce 
International Monetary Fund articles of agreement that 
explicitly prohibit currency manipulation; number two, impose 
tariffs on those countries that utilize currency manipulation 
to gain advantage in the U.S. marketplace;
    Number three, institute tax credits for domestic 
production, both for those who produce and for those who 
purchase from U.S. domestic manufacturers; and, number four, 
establish a U.S. national policy that recognizes that 
manufacturing is crucial for the maintenance and potential 
growth of our work force and manufacturing business sector.
    Thank you very much for allowing me to speak today.
    [Mr. Yagle's statement may be found in the appendix.]
    Chairman Manzullo. Thank you, Steve, for coming here. I 
understand you have a meeting and may have to leave here prior 
to the Committee adjourning. If that is the case, you can just 
excuse yourself and leave any time you want.
    Mr. Yagle. Thank you, Mr. Chairman.
    Chairman Manzullo. You are welcome.
    Our next witness is Jay Bender. Jay is speaking on behalf 
of the National Association of Manufacturers. He is also the 
president of Falcon Plastics, Inc. We look forward to your 
testimony.

  STATEMENT OF JAY BENDER, PRESIDENT, FALCON PLASTICS, INC., 
             NATIONAL ASSOCIATION OF MANUFACTURERS

    Mr. Bender. Good afternoon, Mr. Chairman and Members of the 
Committee. Thank you for allowing me to be here today.
    My name is Jay Bender, and I am president of Falcon 
Plastics, a manufacturer of custom plastic molded components, 
assemblies and tooling located in Brookings, South Dakota. I am 
pleased to discuss the effect of foreign currency manipulation, 
especially the undervalued Chinese currency.
    I am also pleased to be speaking on behalf of the National 
Association of Manufacturers, the NAM, which represents 14,000 
members, including 10,000 small and medium sized companies.
    Falcon Plastics has been in business for 28 years. The 
company was founded by my father, Don Bender, in 1975. We 
employ 200 people and have three production facilities, two in 
South Dakota and one in Tennessee. We sell custom molded 
plastic products to the agricultural, appliance, automotive, 
business machine, electronics and medical industries. We have 
shipped our products to 28 states and export around the world.
    We can and do work hard to stay competitive by 
incorporating up-to-date equipment and production methods, but 
we cannot compete when the deck is stacked against us. The 
situation in American manufacturing today is serious and in 
some sectors critical. Over the past several years, American 
manufacturing has lost almost 2.5 million. Mr. Chairman stated 
2.7 million. Falcon Plastics has gone from 300 people to just 
200 people.
    Mr. Chairman, let me stress that. We have lost one-third of 
our work force. At the same time, imports from China have 
surged, and the U.S. trade deficit with China has ballooned to 
over $100 billion. The NAM projects that if our trade deficit 
with China continues its 20 year trend, in five years it will 
exceed $300 billion.
    This problem must be addressed or American manufacturing 
will lose more jobs, and pressures to retreat from our global 
trade commitments will become irresistible. We have many 
strengths in America. We are innovative. We have some of the 
best workers in the world. We have the benefit of a free and 
open society in which to do business.
    We cannot compete when the currency of a major trading 
partner like China is so undervalued that it produces an 
overwhelming competitive advantage. The NAM has seen estimates 
that China's currency is up to 50 percent undervalued.
    How do we know their currency is undervalued? Economic 
institutes, the World Bank and brokerage houses have all come 
out with estimates, but this one is my favorite. The Economist 
magazine's Big Mac index has been a pretty good indicator. 
Since 1986, economists have been using a comparison of the 
price of Big Macs around the world to gauge if currencies are 
at their market level. This has been among the most accurate 
currency indicator for about 20 years. According to the Big Mac 
index, the Chinese yuan is undervalued by, with all due respect 
to the golden arches, a whopping 56 percent.
    Let me illustrate what is happening. One of my top 
customers recently got bids from a Chinese producer that were 
26 percent lower than mine. My customer is going to stay with 
us for now because we are able to customize our orders and make 
quick deliveries, but I am not sure how long that is going to 
last.
    If the yuan were 20 to 30 percent higher, this would solve 
my pricing problem, and I could hold onto my customers. The 
move to a realistic exchange rate could make a huge difference 
for my company. Until that happens, I see my customers 
purchasing more and more offshore, especially from China.
    These products here tell another story. We mold each of the 
halves of these fishing lure bodies, and we also mold the 
packaging that they fit into. Our customer is a large producer 
of fishing lures. They decorate them and then attach the hooks 
to complete the lure. They have made the decision to move all 
of this production to China because they can save 50 percent 
over the cost of producing it here in the U.S.
    Generally, fishing lures are made by small, family-owned 
companies, but they will not be for long with a 50 percent 
price difference. If China did not deliberately undervalue its 
currency, many of these family businesses might be saved.
    The situation as it currently exists is just unfair. Does 
anyone believe that with all the growth in Chinese production 
increased productivity, product quality and exports the yuan is 
not worth any more now than it was in 1994?
    There are other factors as well. I can produce a particular 
mold for one of my former customers for $25,000. That is a very 
competitive price. They purchase a similar Chinese mold for 
under $3,000. For that particular mold, 20 percent of my price 
is materials and components sourced on the world market. These 
numbers tell me that something here just does not add up. 
Something is wrong.
    Our government must ensure that China is not subsidizing or 
dumping its products, which it is obliged not to do now that it 
is a member of the WTO. In addition to obtaining reform of 
China's currency practices, we ask Congress to look closer to 
home to address rising production costs.
    These are issues addressed in the NAM strategy for 
manufacturing growth and renewal, and they are essential to the 
health of U.S. manufacturing. They include the runaway cost of 
litigation, energy and health care----.
    Chairman Manzullo. How are you doing? How are you doing on 
time?
    Mr. Bender. Almost done.
    Chairman Manzullo. All right.
    Mr. Bender. Almost done. Costly and productive 
environmental and legal regulations and a badly-in-need-of-
overhaul tax system.
    If Congress fixes these problems, manufacturing costs will 
go down, and we will see fewer companies moving their 
production to China and foreign countries.
    Mr. Chairman and Members of the Committee, some of the best 
jobs in South Dakota are in manufacturing. At Falcon Plastics 
we provide a safe working environment with good health and 
retirement benefits for our employees. We understand that we 
make adjustments to operate in a global environment or that we 
must make adjustments, and we are prepared to compete, but we 
must have a level playing field. We do not have five or 10 
years. We need your help now.
    Thank you very much, and I look forward to your question.
    [Mr. Bender's statement may be found in the appendix.]
    Chairman Manzullo. Thank you. Did you wish to make that Big 
Mac a part of the record?
    Mr. Bender. Everyone thought it was my lunch.
    Chairman Manzullo. There it is.
    Mr. Bender. I have a good customer in Rockford, by the way, 
as well, Anderson Packaging, Inc.
    Chairman Manzullo. That is great. That is great.
    Our next witness is George Jones, III. That is a pretty 
famous name. Did you leave your guitar outside?
    Mr. Jones. I do not sing.
    Chairman Manzullo. You do not sing. Okay. If you could pull 
your mike up close to you, Mr. Jones.
    Mr. Jones. Great.
    Chairman Manzullo. Mr. Jones is president of Seaman Paper 
Company of Massachusetts and is speaking on behalf of the 
American Forest & Paper Association. We look forward to your 
testimony.

STATEMENT OF GEORGE JONES, III, PRESIDENT, SEAMAN PAPER COMPANY 
  OF MASSACHUSETTS, INC., AMERICAN FOREST & PAPER ASSOCIATION

    Mr. Jones. Thank you very much. Before I start, I would 
like to thank all of you for caring enough to hold this 
hearing. It means a lot to us.
    Mr. Chairman, my name is George Jones. I am the third 
generation owner of a 57-year-old business that manufactures 
decorative and industrial tissue paper. My company, Seaman 
Paper Company of Massachusetts, Inc., and its affiliates have 
approximately 500 employees, and we are the major employer in 
our area.
    Our products include resale tissue purchased in stores for 
gift wrap, retail packaging tissue used by stores to package 
customer purchases, crepe streamers and waxed paper for floral 
and food service applications. We are a traditional, American-
built, family-owned business. For more than 50 years we have 
enjoyed relative prosperity and success, but today we are 
facing the most severe threat to our existence in our company's 
history: Chinese imports.
    I am here today testifying on behalf of the American Forest 
& Paper Association, AF&PA. AF&PA and its members have a long 
history of support for free and fair trade policies. Our trade 
policy agenda has been driven by the belief that our country's 
abundant fiber resources, skilled labor force and access to 
capital provide the U.S. forest and paper industry with the 
comparative advantage to compete in the global marketplace.
    However, this ostensible comparative advantage has been 
undermined in recent years by unfair exchange rate policies and 
other Chinese Government trade practices. While China's paper 
and paperboard consumption jumped between 1997 and 2002, the 
corresponding growth for U.S. exports did not materialize.
    In fact, exports to China of several important paper 
categories have stagnated or declined because of a substantial 
buildup in Chinese paper and paperboard production capacity. In 
contrast, China's paper and paperboard exports, including 
converted products, greatly benefited from an artificially weak 
currency. Likewise, China has become a major consumer and 
producer of wood products.
    Why have U.S. producers lost ground rather than gained 
ground with the Chinese market over the past five years? The 
Chinese Government has intentionally kept the value of its 
currency abnormally low to create a competitive advantage for 
their products at the expense of U.S. produced goods.
    The Chinese Central Bank maintains the yuan's value at an 
exchange rate of 8.28 to the dollar by regularly intervening in 
foreign exchange markets. This has been done through the 
accumulation of large foreign exchange reserves since the mid 
1990s.
    Some estimates suggest that China's currency is about 40 
percent lower than it would be if it had been allowed to float 
in line with market forces. This has the effect of a 40 percent 
tax on U.S. exports to China and a similar tax on U.S. 
manufacturers competing in the U.S. domestic market against 
Chinese imports.
    What is the on-the-ground impact of the Chinese Government 
policies in communities across the country? I can tell you 
firsthand that it has meant the loss of significant U.S. sales 
for my company, $5 million in annual sales since year 2000 and 
growing. It has meant that I have had to lay off employees and 
curtail production while we have tried to replace the lost 
business.
    Some of my U.S. competitors have not been so fortunate. In 
the last two years, several U.S. paper mills have either closed 
or are barely holding onto their businesses. This means a loss 
of employment, frequently in small, rural communities, and a 
loss of tax revenue to the towns where these companies have 
been located.
    Unfortunately, this story is being repeated in product 
after product, including wood and paper products. My written 
testimony has specific recommendations for action, but I need 
to emphasize that if something is not done quickly many small 
businesses will not survive.
    Let me tell you firsthand that the perception is that the 
Chinese cost advantage is based solely on labor costs. The 
reality is that labor costs alone cannot explain the full cost 
advantage in our product lines.
    In the past 10 years, we have invested heavily in state-of-
the-art converting equipment, which has reduced our labor cost 
by 90 percent for this product and 50 percent for this product, 
yet the Chinese imports are priced at or below our variable 
costs. There is no investment or other management tool that we 
can use to offset this Chinese cost advantage.
    If you do not act and help to create a level playing field, 
then our long-term fate is sealed. Please help us to preserve 
these American jobs.
    Thank you very much.
    [Mr. Jones's statement may be found in the appendix.]
    Chairman Manzullo. Thank you for your testimony.
    Our next witness is Edward----
    Mr. Tashjian. Tashjian.
    Chairman Manzullo [continuing]. Tashjian. Okay. I was 
talking to your congressman, Cass Ballenger.
    Mr. Tashjian. Super guy.
    Chairman Manzullo. He really is. I invited him to come to 
our hearing for the opportunity to introduce you personally, 
but he said that he just was not able to make it.
    Let me announce that on the table before we break there is 
going to be a report that has been compiled by Congressman Gary 
Miller's daughter, who is working on her Master's at one of the 
schools in the Research Triangle.
    It is a great report on the case goods imported from China 
that demonstrates that case goods both in household and in 
commercial furniture are now 30 percent of U.S. market share 
and growing. It is a great report. It is only about 14 or 16 
pages.
    Is it there yet, Phil? It is already on the table, and I 
would invite the panel and the members that have come here to 
the hearing to take a copy of that report with them.
    Tashjian?
    Mr. Tashjian. Tashjian. It is an Armenian name.
    Chairman Manzullo. Ed has come here from Hickory, North 
Carolina, as vice president of marketing for Century Furniture 
Industries, and we look forward to your testimony.

 STATEMENT OF EDWARD M. TASHJIAN, VICE PRESIDENT OF MARKETING, 
CENTURY FURNITURE, AMERICAN FURNITURE MANUFACTURERS ASSOCIATION

    Mr. Tashjian. Thank you. Thank you very much, Mr. Chairman 
and Members of the Committee. Thank you for the opportunity to 
testify.
    Chairman Manzullo. Could you pull the mike closer to you? 
You might want to pull it down just a little bit.
    Mr. Tashjian. How is that?
    Chairman Manzullo. That is fine.
    Mr. Tashjian. I am Ed Tashjian, and I am the vice president 
of marketing for Century Furniture, a high end residential 
furniture manufacturer located in Hickory, North Carolina.
    It is an honor to appear before you today, and I have great 
personal admiration for this body, as well as an enormous 
appreciation for the time, talent and energy each of you 
dedicate to public service. You do a great job not just on this 
issue, but on every issue.
    At the outset, let me make it clear that unlike my 
colleagues at the end of the table, Dr. Blecker and Dr. 
Bergsten, I am not a trained economist. I am not an expert on 
world trade and international monetary policy.
    I am here today as an advocate for the 156,000 men and 
women who make up America's residential furniture manufacturing 
industry to present a small business point of view on the 
impact of currency manipulation and to ask you to use your 
common sense and good judgment to do what is in the best 
interest of this country.
    Clearly, this is a complex subject both technically and 
ideologically, and there are no easy answers. At the end of my 
testimony, however, I hope you will conclude that the term fair 
trade means the enforcement of U.S. laws and international 
trading rules and that the continued loss of furniture 
manufacturing jobs to the Far East does not serve the best 
interests of the United States.
    This hearing could not have come at a more opportune time. 
Thanks to the perseverance of lawmakers like you who care about 
domestic manufacturing, the issue of currency manipulation is 
now receiving the attention it deserves.
    Secretary Snow's comments last week in support of a more 
fairly valued yuan and his belief that China is prepared to 
move in that direction are positive signs that the 
Administration is beginning to understand how this issue 
impacts domestic manufacturers like us who are already having a 
difficult time competing.
    If you go into any high end furniture retail store today, 
you will find that roughly comparable residential wood 
furniture that is manufactured in China costs anywhere from 
one-third to one-half of furniture manufactured in the United 
States. The result is a lack of competitiveness and a loss of 
nearly one-quarter of the domestic furniture manufacturing jobs 
in the last three years.
    As devastating as these statistics are, these figures 
understate the magnitude of the impact of these losses on 
communities like Hickory because declines in furniture 
production have a serious ripple effect, hurting firms that 
supply textiles, hardware and a range of services to our 
industry. There are few things more disheartening than to pick 
up a local newspaper and read about another plant closing.
    In my view, there are five key factors that contribute to 
this substantial pricing variance at retail, and I mention 
these five to add fuel to the fire that George was talking 
about that, you know, currency manipulation is just one of 
these things, and it is the dominant one, as you will see.
    The first one is low wages, and I agree with George that 
everybody believes that the advantage the Chinese has is 
predominantly low wages. For a comparable worker in China, they 
earn 45 cents an hour, while his counterpart in the U.S. earns 
$12.75 an hour. To put that in perspective, the Chinese worker 
makes 1/28th as much as the American worker.
    The second are intellectual property rights violations. 
Foreign products have a much lower development cost because 
they are almost always based on American designs. The U.S. must 
press China to vigorously enforce its IPR related commitments 
as a new member of the World Trade Organization.
    Third are lower operating costs. Many Pacific Rim 
competitors have no EPA, no OSHA requirements, which 
dramatically reduce operating costs. Now, please understand 
that I strongly support providing our employees with an 
impeccable work environment. In fact, Century goes to such 
great lengths to have a safe and comfortable environment that 
in our chair plant we have gone 1,000,000 hours without a lost 
time accident, which is the equivalent of an individual worker 
working for 500 years without a lost time accident. It is very 
important, and we work towards that.
    Fourth, what enters into this are lower health care costs. 
I am not an expert on foreign health care, but I can tell you 
that better than eight cents of every dollar, every revenue 
dollar, goes towards health care at my company. The expense of 
this has doubled over the past five years. In fact, we spend 
more on health care than we spend on lumber, fabric and 
leather.
    Fifth, and most importantly, is currency manipulation. By 
pegging the yuan to the dollar, an exporting nation like China 
has in effect undervalued its currency by as much as 30 to 50 
percent. This is tantamount, as everybody here has said today, 
to a 30 to 50 percent tariff on U.S. products in our own 
marketplace. That is terrible. It is like two Olympic sprinters 
competing in a 100 meter dash, but one gets to start at the 40 
meter mark. It is unfair.
    Of these five factors, currency manipulation is by far the 
most serious. Many of our foreign competitors have an advantage 
when it comes to cheap labor, less stringent regulations and 
significantly lower operating costs, but the cost variance in 
the marketplace of products made in these countries is nowhere 
near what it is in countries like China where the currency is 
pegged.
    The WTO and the IMF have stated that such currency 
manipulation done to gain an unfair competitive advantage is 
illegal in the global trading system. Therefore, it is vitally 
important that U.S. trade authorities monitor and enforce 
China's obligations in this area and insure that the timetables 
for action embodied by the WTO agreement are met. Free trade 
must also be fair trade and legal trade, and I would encourage 
this panel, as well as the Administration, to stand firm on the 
pursuit of fair valuation.
    Century Furniture appreciates all this Committee has done 
to focus attention on the plight of manufacturing in the U.S., 
and we hope that you will remain engaged on this important 
issue.
    Thank you.
    [Mr. Tashjian's statement may be found in the appendix.]
    Chairman Manzullo. Thank you for your testimony.
    Our next witness is a good friend, Dr. Paul Freedenberg, 
testifying on behalf of the Association for Manufacturing 
Technology. We look forward to your testimony.

   TESTIMONY OF PAUL FREEDENBERG, VICE PRESIDENT, GOVERNMENT 
  RELATIONS DIRECTOR, ASSOCIATION FOR MANUFACTURING TECHNOLOGY

    Mr. Freedenberg. Thank you. Good afternoon. My name is Dr. 
Paul Freedenberg. I am Vice President, Government Relations, 
for AMT, the Association for Manufacturing Technology. Today I 
will be testifying on behalf of AMT, a 100-year-old trade 
association that represents approximately 350 machine tool 
builders and related product firms throughout the United 
States.
    It should be cause for great concern that the machine tool 
industry is experiencing the worst conditions in its domestic 
market in a half a century. Orders are off more than 60 percent 
since their peak in 1997. Import penetration has increased more 
than 40 percent in the past four years due in large part to an 
overvalued dollar, which has only recently receded from its 
dizzying heights in relation to the European currency.
    More than 30 machine tool companies have closed their doors 
in the past 18 months. Most recently, we have seen the 
bankruptcy of Ingersoll Milling, one of the oldest and most 
technologically advanced companies in the industry and one of 
your oldest and most distinguished constituents, Mr. Chairman. 
I guess one could conclude that if Ingersoll could fail, anyone 
in the machine tool industry is vulnerable.
    Today, I will focus on a core problem that all of U.S. 
industry confronts. That problem is Chinese currency 
manipulation. For more than a year, AMT has been part of the 
Coalition for a Sound Dollar, and as part of this coalition we 
have expressed our great concern regarding the Chinese 
Government's strategy of undervaluing their currency in order 
to garner exports and foreign investment.
    Last year, our nation's bilateral trade deficit with China 
exceeded $103 billion, the largest bilateral deficit in the 
world. Based on the four months of 2003, that deficit is headed 
for more than $120 billion this year. It is a deficit and a 
trend that any economist will tell you is unsustainable, yet it 
has continued to grow at this pace for the past decade.
    Indeed, China is accumulating foreign currency reserves, 
mostly U.S. dollars, at a rate of approximately $6 billion per 
month. This is an uneven trading arrangement, and it is 
directly related to the distortion and the value of the two 
nations' currencies.
    It is obvious that China's economic strategy over the past 
decade has been to keep the value of its currency low, boosting 
its exports and holding down imports. While many have observed 
that this is a highly successful strategy, another way of 
looking at it is that this is a shrewd method of exporting 
unemployment.
    For those who will tell you that China's trade surplus is 
self-correcting I would point out that the United States 
imports from China have been growing at more than twice the 
rate of U.S. exports to China. Underlying all of this is the 
currency imbalance, and if you get rid of that currency 
imbalance you would more than double the offset getting rid of 
all of the tariffs that China imposes on U.S. goods.
    I would point out that both Article 15 of the WTO and 
Article 4 of the International Monetary Fund prohibit the use 
of currency manipulation as a method of gaining unfair trade 
advantage. The IMF defines such manipulation as large scale and 
protracted intervention in one direction to gain an unfair 
trade advantage. The WTO prohibits currency intervention that 
would frustrate the intention of the provisions of the WTO 
agreement. An unfair trade case against China could be brought 
in either forum.
    Parenthetically, I believe that these very same Chinese 
currency practices are also challengeable under Section 301 of 
the Trade Act, but for any of this to occur the U.S. Government 
has to have the political will to take these actions. This 
unfair currency issue is the responsibility of the Secretary of 
the Treasury.
    It is my hope that Secretary John Snow will at the very 
least enter into discussions with his Chinese counterparts at 
the earliest possible opportunity with the objective of 
achieving a more reasonably priced yuan. Initially, this issue 
need not be the subject of a formal trade action, but Secretary 
Snow should not hesitate to initiate one or more of the actions 
I have discussed if the Chinese are unresponsive.
    There is really no alternative to the immediate initiation 
of such discussions or ultimate trade actions if the 
discussions should prove fruitless. Either this debilitating 
trade distortion must be eliminated or we will see many 
industrial sectors faced with very unattractive alternatives--
the prospect of losing their markets entirely or the 
alternative of being forced to relocate in China as the only 
opportunity for survival.
    Thank you, Mr. Chairman.
    [Mr. Freedenberg's statement may be found in the appendix.]
    Chairman Manzullo. Thank you for your testimony.
    Our next witness is Mr. Cass Johnson speaking on behalf of 
the American Textile Manufacturers Institute. Mr. Johnson, we 
look forward to your testimony.

  STATEMENT OF CASS JOHNSON, SENIOR VICE PRESIDENT, AMERICAN 
                TEXTILE MANUFACTURERS INSTITUTE

    Mr. Johnson. Thank you. Thank you, Mr. Chairman, Members of 
the Committee. Thank you for this opportunity to speak about 
the terrible damage that Asian currency manipulation is doing 
to the U.S. textile sector, one of this country's largest 
manufacturing employers. There is not a more important issue 
facing manufacturing today, and you and your colleagues are to 
be highly commended for holding these hearings.
    My name is Cass Johnson. I am a senior vice president at 
the American Textile Manufacturers Institute and have worked in 
the textile area for 13 years. As such, I can describe what can 
happen to a great manufacturing industry when our government 
does not deal forcibly with important issues such as this one.
    By way of background, in 1994, China cut the value of the 
renminbi by more than 40 percent. Forty percent is a number we 
have been hearing a lot today. The not too surprising response 
came three years later when China's most direct competitors, 
other Asian nations, saw their own economies collapse and their 
own currencies losing an average of 40 percent. Three years 
later, the U.S. manufacturing sector slid into recession, 
taking the U.S. economy with it.
    There is an important chain of events here. First, China 
cuts the value of the renminbi by about 40 percent. Next, the 
currencies of its Asian competitors are devalued by about 40 
percent, and then finally U.S. manufacturing suffers its worst 
recession since the Great Depression.
    In the textile sector, the effect has been nothing short of 
devastating. As China and other Asian currencies have been 
devalued, prices for textile and apparel products from these 
countries have fallen by as much as 38 percent. With U.S. 
profit margins below five percent, a 38 percent drop by your 
competitor pretty much puts you out of business.
    As a result, since 1997 we have closed more than 200 
textile plants in the United States and lost more than 210,000 
textile jobs. It is the worst bloodletting for this industry 
since the Great Depression. In fact, I can give you a whole 
list of companies that made it through the Great Depression, 
but have not survived the last years.
    Let me emphasize that these were not antiquated mills using 
outdated equipment. On the contrary, we have been shutting down 
modern, highly productive textile plants and all too often 
shipping their state-of-the-art weaving looms and spinning 
frames to China.
    While U.S. manufacturing and the U.S. textile industry are 
obviously affected by many issues, one fact stands out. During 
this time, Asian governments, in particular China, spent over 
$1 trillion to keep their currencies undervalued and their 
exports to the U.S. strong.
    What is most tragic about this is that it could and should 
have been prevented. What Korea, Taiwan, Japan and China, among 
others, are doing with their currencies is out and out illegal. 
One way purchases of currency with a purpose of gaining an 
export advantage are specifically prohibited under both IMF and 
WTO rule.
    Not only that; these actions are also clearly against the 
President's own stated policy that free markets, not export 
oriented Asian governments, should determine exchange rates. 
Not only that; these actions clearly are doing enormous damage. 
An excellent study by Ernie Preeg from the Manufacturers 
Alliance concluded that 1.5 million manufacturing jobs have 
been lost during the last two years because of illegal Asian 
currency manipulation.
    Influential news organizations from around the world--the 
Economist, the New York Times, the Wall Street Journal, the 
Financial Times; the Financial Times had a story yesterday on 
this--all agree that Asian currency manipulation of this 
magnitude is not only bad for the United States, but it is also 
destabilizing for the entire world economy.
    One might have expected that all this evidence, all this 
breaking of international rules and, most importantly, all 
these terrible job losses might have provoked some serious 
action by our government. In fact, many of us from the 
manufacturing sector, a number of them at the table here today, 
have spent the last year and a half trying desperately, and I 
want to underline desperately, to get the U.S. Government to 
act.
    We have gone to USTR and to Commerce and to State on 
multiple occasions. Surely there are few issues that have a 
bigger trade, economic and international impact than this one. 
Each time we have been turned away with the proviso we cannot 
talk about this. Only Treasury can.
    Well, we have been repeatedly to Treasury, and the problem 
with Treasury is that you feel this is some far away story that 
they do not want to bother about much. In fact, according to 
the Treasury Department's semi-annual report to Congress, 
currency manipulation is not even happening.
    According to Treasury, those $1 trillion in Asian central 
banks do not really count for anything at all. Those 2.3 
million lost manufacturing jobs? According to Treasury, illegal 
Asian currency manipulation did not have a thing to do with it.
    On the one hand we are confronted with very aggressive 
Asian governments that are breaking international rules going 
against stated U.S. policy and along the way throwing millions 
of hardworking Americans out of their jobs at a time when our 
economy can least afford it. On the other hand, we have a U.S. 
Government that cannot even talk about this issue except to 
refer the matter to Treasury, which officially says currency 
manipulation does not exist.
    That is one reason why our industry is so grateful that you 
and the other Members of the Committee are highlighting this 
issue. Action cannot come a moment too soon.
    Thank you, and I would be happy to answer any questions.
    [Mr. Johnson's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much for that excellent 
testimony.
    The $500 billion or so trade deficit is more than that. Let 
me give you an example. If this item is exported and it costs 
$100 million--a government hammer? That is about what it costs.
    [Laughter.]
    Chairman Manzullo. It goes down on the trade merchandise 
balance sheet as plus $100 million, even though it could 
contain $99 million worth of foreign parts. Before the NAFTA 
tariffs were completed, at least we had the bonded material and 
had an idea of what was coming back in terms of a reimport. Now 
we have something similar on the 62.5 percent content in 
automobiles.
    You have to wonder. The stock market is going up in value. 
Sales are increasing. The only jobs that are being created are 
overseas. This is indeed a recovery, if you want to call it 
that, with a continuous decrease in the loss of jobs, and the 
problem is the fact that this city does not understand it.
    I have been talking about manufacturing for 11 years 
because Rockford is a city that has a huge industrial base. It 
is about a 25 percent industrial base. Nearby McHenry County, 
until a few years ago, had an astonishing 36 percent industrial 
base. Most cities are 14 percent. Rockford led the nation in 
unemployment in 1982 at 24.9 percent where we lost 100 
factories and 10,000 highly skilled jobs.
    I am looking, Dr. Freedenberg, at page 6 of your testimony 
that talks about remedies. I think it is time to send a missile 
across the bow of the Administration. I think perhaps it is 
time that we send a letter saying that Congress perhaps should 
not entertain any more free trade agreements until the 
Administration begins to enforce some of the remedies that you 
have set forth on page 6.
    What do you think about that?
    Mr. Freedenberg. I did not come here to advocate 
protectionism or to stop the trade negotiations, but I think 
you will see that Congress--I think you are a good reflection 
of sentiment.
    Support will be lost for free trade if we continue in this 
situation with the distortion that has existed with Asian 
currencies.
    Chairman Manzullo. I mean, this is not free trade.
    Mr. Freedenberg. It does not amount to that.
    Chairman Manzullo. Why did Treasury come out with the 
statement that there was no distortion?
    Mr. Johnson, you talked about that report. I was astonished 
when I saw it also.
    Mr. Johnson. We have asked them that question. How can you 
not find distortion when literally everyone else is finding it, 
when other banks are finding it, when financial analysts are 
finding it?
    Chairman Manzullo. When McDonald's is finding it.
    Mr. Johnson. When McDonald's is finding it.
    Chairman Manzullo. Right.
    Mr. Johnson. The requirement to look for it, as I 
understand it, was put in in the 1980s when this problem 
emerged before and Treasury was ignoring the issue. They say 
well, we do not really know what the definition of distortion 
is.
    Chairman Manzullo. That is interesting.
    Dr. Bergsten, in the midst of your testimony you had 
talked, and maybe I did not understand it, about imposing some 
type of a surcharge on those countries that send items here 
when the currency is being manipulated.
    Mr. Bergsten. No, Mr. Chairman. I did not talk about a 
trade surcharge. I talked----.
    Chairman Manzullo. That is a new word for tariff, I 
thought.
    Mr. Bergsten. No. It has been used. Remember, President 
Nixon put on a 15 percent surcharge----
    Chairman Manzullo. We will find a new word then.
    Mr. Bergsten [continuing]. For all U.S. imports in 1971 for 
exactly this reason when the dollar was overvalued. Under those 
rules of the game, then you actually had to negotiate the 
devaluation of the dollar. He and John Connally put on an 
import surcharge to speed that negotiation. It was rough, but 
it worked.
    No. What I suggested was something directly in the exchange 
market. Japan was my case where they are clearly intervening 
hugely to block the currency adjustment that the market is 
trying to provoke. I suggested our Treasury should counter 
their intervention dollar for dollar.
    In fact, I suggested something even less Draconian; that 
the Secretary simply tell the Japanese that he was prepared to 
match their intervention dollar for dollar. I am quite 
confident that would be sufficient for them to cease and 
desist. I do not think we would actually have to do it, but if 
we got serious and threatened that counterintervention I am 
quite confident that would resolve the Japanese part of the 
problem.
    The Chinese problem is more complicated. Everybody here has 
been beating up on China, starting with myself, but let me make 
one point on the other side of the debate. We have all noted 
that China has pegged to the dollar. Indeed, it did so from 
1994 when it unified its exchange rates and did that big 
devaluation.
    Remember, since that time, as I testified and as you know, 
the dollar actually rose by 35 to 50 percent against the trade 
weighted average of currencies we deal with. That means China 
rode the dollar up for six and a half years, hurting their 
competitive position.
    Now, the fact that they have done so well and piled up so 
many reserves and attracted so much investment actually shows 
just how competitive they are because they did it despite 
riding the dollar up, but the point is for a long time the 
average exchange of the renminbi actually appreciated sharply 
in value. It has ridden the dollar down for the last 17 months, 
and I think we have to take strong action to get them to stop 
doing that, but in fact they did go the other way for a 
prolonged period of time.
    With China, the issue is to get them to stop pegging to the 
dollar. In fact, it is in China's interest. They claim they do 
it to get a ``stable'' exchange rate, but that does not lead to 
a stable exchange rate. The dollar fluctuates wildly against 
the euro, the yen, every other currency in the world.
    The Chinese peg to the dollar. They get dollar stability, 
but it is a minority of their trade, less than a third. They 
would get more stable exchange rates if they actually pegged to 
a basket of currency and let their exchange rate move, so it is 
even in their interest. That one is more complicated.
    They are following another IMF rule that says any country 
can set its own exchange rate system, which in their case is to 
peg to the dollar which is perfectly legitimate. Hong Kong does 
it. Argentina did it, unfortunately, until recently. The issue 
is the price.
    Since the price is clearly undervalued--we have all 
testified to that extent--pressure does need to be brought on 
China to move the rate up. They could appreciate in one step. 
They could let it float up. There are any number of ways to do 
it, but that is the issue.
    Chairman Manzullo. I saw an article in the Wall Street 
Journal last week that a lot of our U.S. multinational 
corporations that are manufacturing in China want to keep that 
peg, which I think is pretty bad, in order to keep the currency 
at an artificial rate.
    Mrs. Velazquez?
    Ms. Velazquez. Thank you, Mr. Chairman.
    Dr. Blecker, as Asian countries' dollar holdings have been 
growing, so have their investment of these dollars in the 
safest dollar denominated assets that they can find--U.S. 
Treasury and agency securities. Asian central banks now hold 
more than $1 trillion of U.S. Treasuries alone.
    What has been the effect on the United States' economy of 
these large scale purchases of U.S. government debt?
    Mr. Blecker. Well, the consequences are that it accounts 
for a large part of the estimated damage to the manufacturing 
sector that I spoke of earlier.
    These countries, if we combine the Asian developing 
countries led by China and Japan, account for the majority of 
our trade deficit, and they would account for the majority of 
the estimated damage to the manufacturing sector I cited, which 
was a $100 billion a year loss of profits for these American 
manufacturers, a $40 billion a year loss of investment 
spending, and, in my estimates, which are underestimates 
compared to some other people's, I had three-quarters of a 
million jobs lost. To make it proportional, something on the 
order of 60 percent of that is probably due to those countries.
    Ms. Velazquez. What would happen if these countries 
liquidated the security holdings?
    Mr. Blecker. Well, in terms of the effect in financial 
markets, I do not know how big that would be, but it would 
start to correct some of this currency imbalance.
    Ms. Velazquez. Yes?
    Mr. Bergsten. Could I just add to that? The direct effect 
of that big investment of foreign dollar holdings into 
treasuries has been to keep U.S. interest rates much lower than 
they would otherwise have been.
    Mr. Blecker. Right.
    Mr. Bergsten. That has been the argument, particularly in 
the previous Treasury Department, for the so-called strong 
dollar; that the influx of foreign investment of their export 
earnings has had a favorable effect on our financial markets. 
There is no denying that.
    On your second question, if there was for some reason a 
massive withdrawal of foreign assets from the U.S. security 
markets, it would have a noticeable impact driving down the 
prices of Treasuries and, therefore, driving up their interest 
rate. That is always the horror story in this field, as a 
former Undersecretary of the Treasury.
    If the dollar ever went into a free fall or a collapse, you 
would have a significant risk of inflation pressure picking up 
and interest rates rising. Now, I was careful to say in my 
statement that there is absolutely no sign of any of that over 
the last year and a half of dollar correction. It has been 
gradual and orderly.
    Indeed, I think it has been the perfect time to do it 
because we are at a low inflation/low interest rate 
environment. We know the dollar has to come down. Not only does 
the dollar need to come down. It needs to come down now because 
this is the right time to do it.
    Having said that, there is always the risk. If the gradual, 
orderly decline became a free fall, it could be trouble.
    Ms. Velazquez. Thank you. Thank you.
    Mr. Bender, by pursuing weak dollar policies, we run the 
risk of generating inflationary pressures that could lead to 
higher interest rates. Should we pursue a weaker dollar even if 
it leads to higher capital costs for businesses, or do you 
believe that near term deflationary pressures are enough to 
upset any inflationary pressures that result from the weaker 
dollar?
    Mr. Bender. It sounds like an economist question.
    Ms. Velazquez. If any of the others----.
    Mr. Bender. Well, I guess I could just make some comments. 
Right now, the interest rates are lower than we have ever seen, 
and certainly I am enjoying that right now.
    Unfortunately, for the past several years my business has 
been in an overcapacity situation so low interest rates really 
are not helping me as far as going out and purchasing new 
equipment or financing new capital, which I think has been one 
of the big issues in our U.S. economy that manufacturers have 
been in an overcapacity situation. There is no need to go out 
and invest.
    Ms. Velazquez. Dr. Blecker?
    Mr. Blecker. Thank you. Until we have the disastrous 
scenario that Fred Bergsten just painted of the free fall and 
the huge hike in interest rates, which I agree is unlikely, I 
think any realistic rise in interest rates and capital costs 
would be much smaller than the savings from correcting the 
current competitive disadvantages that you have heard about 
here. These kind of disadvantages are on the order of 30 or 40 
percent. If we are talking about interest rates going up a few 
percent, even five percent, it would pale by comparison.
    There are a lot of studies that have been done of business 
investment in the United States, and the best studies--I would 
particularly commend to you Barry Bosworth's book from the 
Brookings Institution in 1993--show relatively little (and what 
we call in economics statistically insignificant) effect of 
interest rates and capital costs on business investment, 
whereas the demand factor, how much customers are purchasing 
from companies and what their market looks like, is really the 
driving factor in investment.
    If these companies' business picks up because they are no 
longer selling at a huge, competitive disadvantage vis-a-vis 
these countries, they will be able to invest, even if capital 
costs are a little higher. The higher revenue, the demand 
growth and competitive situation will more than compensate.
    Ms. Velazquez. Thank you.
    Mr. Jones. Could I add a real life example to that too, 
please?
    Ms. Velazquez. Sure.
    Mr. Jones. Your question is would you rather have low 
interest rates or sales, and I think the answer is we would 
rather have the sales.
    For years, we thought that this was all a labor thing. We 
invested very heavily in labor saving equipment. Now we have a 
machine that would put us in a competitive position on this 
product which is sitting idle right now because the sales went 
over to China.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Chairman Manzullo. What is that product, Mr. Jones?
    Mr. Jones. These are crepe streamers for parties.
    Chairman Manzullo. Okay. The next questioner would be 
Congressman Schrock, who has an interesting alma mater.
    Mr. Schrock. Yes. I also am a graduate of American 
University.
    Chairman Manzullo. Are you not amazed that you can turn out 
a couple of conservatives like this in light of the reputation 
there?
    Mr. Blecker. We have a very diverse campus.
    Chairman Manzullo. There you are.
    Mr. Schrock. In spite of American, I still came out a 
conservative.
    Chairman Manzullo. Is that right?
    Mr. Schrock. Yes, that is right. No. It was a great 
experience. It really was.
    Thank you all for testifying today. Each of the stories you 
told was very interesting. This Chairman is the one who has 
really peaked my interest in the loss of manufacturing jobs, 
and I guess all through my life I have seen it. When I was 
growing up in Middletown, Ohio, Armco Steel Corporation was a 
massive company founded by one of my neighbors, Charles H. 
Hook. It is now owned by the Japanese and slowly, but surely, 
going away.
    My closest friend in college lived in Aliquippa, 
Pennsylvania, which was the steel Mecca of America. It is gone. 
When I was a student at the senior officer course at the Naval 
War College in Newport, Rhode Island, my wife loved to go to 
the outlets in Fall River, Massachusetts, where they made 
clothing. That is all gone now. It has all gone overseas, and 
it continues to get worse and worse and worse. I guess I just 
do not know where we stop this.
    All we are looking for is a level playing field. I think 
Mr. Bender said that. Mr. Tashjian said--by the way, my uncle 
worked for Century Furniture for 30 years in Hickory, so I know 
your company very well. You talk about lost time accidents. The 
Chinese do not care.
    Mr. Tashjian. Right.
    Mr. Schrock. They do not have safety laws. They do not have 
labor laws. If somebody gets hurt, injured or killed, they just 
take one of their one billion people and stick them in that 
hole, and they do not worry about that. We do. We are a 
compassionate society who cares about that sort of thing. 
Because of that, I think we are at a terrible disadvantage. How 
we balance that, how we correct that, is a total mystery to me.
    Mr. Johnson, I think your comment was one of the most 
fascinating in your testimony. You said one-way purchases of 
currency with the purpose of gaining an export advantage is 
clearly illegal under both IMF and WTO rules, and they do it 
and do it and do it. What do we do about it? What are we doing 
about it? I do not know.
    Mr. Johnson. Nothing, right?
    Mr. Schrock. Nothing.
    Mr. Johnson. It is Treasury's purview.
    Mr. Schrock. But whose feet should be held to the fire on 
this? Commerce's?
    Mr. Johnson. Treasury.
    Mr. Schrock. Treasury, I mean. Treasury, yes.
    Mr. Johnson. You know, I think all the other agencies are 
sympathetic because this is causing problems for them in trade 
negotiations and international agreements and whatever. They 
sent us to Treasury. We talked to Treasury, and nothing seems 
to happen.
    Mr. Schrock. What is their excuse why it is not happening?
    Mr. Johnson. They do not believe it is happening.
    Mr. Schrock. They do not believe it is happening. It is 
unfortunate.
    The Secretary was invited to come here today. Is that 
right? He was out of the country.
    Chairman Manzullo. He would have come, but he is out of the 
country.
    Mr. Schrock. He is out of the country. Yes.
    Mr. Johnson. Can I say about Secretary Snow? He is the 
first one that has had positive words on this.
    Mr. Schrock. Great. Yes.
    Mr. Johnson. I will tell you, at the staff level my 
experience of them is that this is an issue they do not want to 
embrace.
    Mr. Schrock. Sure, because it might jeopardize their jobs, 
and they are in there to keep themselves employed. They do not 
care how they do it. It is costing us.
    Mr. Johnson. I think there is a serious impediment there.
    Mr. Schrock. Yes. Mr. Blecker was the first one that talked 
about the currency manipulation, and I am going to ask all of 
you. I do not know the answer to this. I am not an economist, 
so I do not know.
    How do you recommend we pressure East Asia, for instance, 
to abandon their currency manipulation? Clearly, I think we 
ought to be able to do something about it. I do not know what. 
If we can, then this body up here from the people who sit from 
that desk back ought to be able to try to accomplish this and 
make it happen.
    Yes, sir, Doctor?
    Mr. Bergsten. Well, Mr. Schrock, I would say again that I 
think the most direct and, therefore, appropriate route is to 
respond directly to their currency intervention in the currency 
market.
    I have suggested that we could tell the countries 
involved--in the first instance Japan, but the same approach 
could be taken to China--that if they continue to distort the 
market, which runs directly counter to Secretary Snow's 
pronouncement of U.S. policy that we will simply offset that 
directly.
    We can intervene infinitely if we wish by selling dollars. 
We produce dollars. We have no constraint on what we can do in 
that market.
    Mr. Schrock. Do you perceive Secretary Snow wishes to do 
that?
    Mr. Bergsten. He has made very clear to the Japanese, both 
publicly and I believe privately, that he strongly disapproves 
of their intervention policy. He has publicly rebuked it and 
indicated that they should let the rate be set by the market.
    I actually think it is confrontational from the Japanese 
side that they have not only continued, but accelerated their 
intervention since he has said that. In May alone, they 
intervened to the tune of $43 billion in the exchange market. 
As I mentioned, and it is not my comment. It is the comment of 
the former top Japanese official in this area. The yen would be 
10 percent stronger today in the absence thereof.
    I think that is the direction. You can make all sorts of 
efforts in the trade policy area. You can talk about import 
surcharges. These would have all sorts of negative effects on 
our own economy in terms of raising cost, prices, all of that. 
It is a monetary problem. I think it should be dealt with in 
the monetary area.
    Several people have mentioned that the rules of the 
International Monetary Fund do provide for this kind of 
response. U.S. law provides for this kind of response. The U.S. 
Treasury has been asleep at the switch. The IMF has been asleep 
at the switch, and I will add, as I said in my statement, the 
G-7 has been asleep at the switch.
    The people that should really be with us in leaning on the 
Asian countries to let their exchange rates move up are the 
Europeans because if the Asian currencies do not move up, the 
whole decline of the dollar occurs against the euro, and the 
Europeans take a hit to their competitive position. With a 
little U.S. effort, it need not be a unilateral move. The 
Europeans would surely support us strongly. It could be a G-7 
initiative as a whole to go to China, which is not in the G-7, 
or to Japan within the G-7 to make this approach. Things like 
this have been done before.
    I mentioned the Nixon shocks. That was to achieve a sharp 
decline in the value of the dollar in a somewhat similar 
situation. Secretary Jim Baker, in 1985, in the Plaza 
agreement, got the G-7 to agree to drive down the dollar in 
exactly these circumstances. The dollar dropped by 50 percent 
over the next two years to correct the huge overvaluation, 
which actually drove the U.S. from being the world's biggest 
creditor country to the world's biggest debtor country in the 
middle of the 1980s.
    This has been faced before. The problem is that the 
responses have only come when a real crisis emerged. In the 
case of the Nixon Administration, foreigners were selling 
dollars for gold. There was a real threat to our 
convertibility. We closed the gold window and negotiated a 
devaluation with the help of an import surcharge.
    In the middle 1980s, Secretary Baker, because the Congress 
was threatening to go hugely protectionist at the time, and you 
may remember that.
    Mr. Schrock. I do.
    Mr. Bergsten. He got the G-7 countries to agree to bring 
the dollar down sharply. It worked. By 1990-1991, our current 
account deficit was largely eliminated, so it worked.
    The problem is the Treasury of the day for the reasons 
mentioned, because they do not want to take aggressive actions 
in this area for various reasons, wait until it is very late in 
the day. Lots of jobs have been lost. Lots of damage has been 
caused. The issue here is to move sooner rather than later. 
Eventually they will have to do it.
    Just to be clear, their hope now is that this market driven 
decline of the dollar over the last year and a half will 
continue in the gradual, orderly way I have suggested. They are 
hoping that their calls on Japan and China to let their rates 
join the process will suffice. Maybe they will, but there is no 
sign to that yet.
    The issue is to make sure what has begun to happen, very 
hopefully so, will continue and, as I say, about double what we 
have had so far.
    Chairman Manzullo. Thank you.
    Mr. Schrock. Mr. Chairman, I know my time has expired. Let 
me just say what I hear the doctor saying is that this 
Chairman, the Members of this Committee, need to get the 
Treasury officials up here and put their feet to the fire and 
say get this fixed because if not we are going to lose more 
manufacturing jobs. That will not make you happy, and it will 
not make me happy.
    Chairman Manzullo. The core problem is that very few people 
in this city understand the nature of manufacturing. There are 
a lot of people that believe that we could lose our entire 
manufacturing base, and it does not mean anything.
    Mr. Schrock. I know.
    Chairman Manzullo. That is the big problem.
    Mr. Schrock. And what I understand is we do not have 
manufacturing anymore.
    Chairman Manzullo. Dr. Freedenberg?
    Mr. Freedenberg. If I could add just one thing?
    Mr. Schrock. Well, not like we used to.
    Mr. Freedenberg. In the 1980s when I was a trade official, 
I asked Secretary Baldridge what kind of leverage we had. He 
said our counterparts in Asia can add. They know which 
direction the surplus in the deficit is. They know who is the 
richest. Therefore, we have all the leverage we need.
    I return to what I said in my testimony. We just have to 
have the political will to apply it. It is not like we do not 
have it. We are the most powerful there is and the richest 
there is. It is a matter of whether you want to do it, and that 
is the question; not whether you have the leverage when you 
want it.
    Chairman Manzullo. I can guarantee you if it involved jobs 
around the Beltway that the city would understand what is going 
on.
    Somebody who lost 11,000 manufacturing jobs in one day, 
Grace Napolitano had the opportunity to visit her district last 
September in a tremendous hearing. You are still at what, 11 
percent unemployment?
    Ms. Napolitano. It is 10.
    Chairman Manzullo. It is 10 percent.
    Ms. Napolitano. We are 10. We dropped one, but still thank 
you for being with us. Thank you.
    You will find that this Committee has done a lot in 
bringing some of the issues that affect all business. I am 
particularly proud because those that are sitting on this 
Committee understand your pain. We cannot get the 
Administration to move, to look at small business, to look at 
the effects on small business, what is happening, and to assist 
small business. I hear you.
    Forget economy. I know very little about it, but I can tell 
you that in my district----.
    Chairman Manzullo. Mrs. Napolitano, could you suspend for 
just a second?
    Ms. Napolitano. I yield to you.
    Chairman Manzullo. Please either be quiet, or I will have 
the police remove all of you.
    [Applause.]
    Ms. Napolitano. That is our Chairman for you. Thank you, 
sir.
    You understand that I actually started a small 
manufacturing task force in my district because there is, and 
mine is a small district in terms of manufacturing, in terms of 
industry and commercialism, but there is such a need, such a 
cry for my businesses, that there needs to have something 
happen.
    I have heard the same argument from them that I have heard 
from you. I am listening to Mr. Blecker and Mr. Bergsten. Both 
of you have indicated that there needs to be some credible 
action taken by the agencies themselves to be able to 
effectively control because that is what it is going to take is 
some control.
    Unless we can just continue having hearings--I have a ton 
of questions I would love to ask, but that is not going to make 
this any better. It is not going to stop the bleeding of our 
businesses, the businesses that are going under because they 
cannot get competitiveness when they have their trade partners 
abroad say well, I can get it from another country at half the 
price or at least undercut what their bare minimum is, given 
the constraints we have. They have subsidies from the 
government. They have all kinds of other assistance, and we are 
not helping our business.
    You will hear the same thing over and over again. We want 
to be able to bring that to the front, to be able to move the 
agenda to help small business, but this is a Committee. We do 
not have the ability to tell the Administration. It is you, the 
business people, who need to stand up on your two hind legs--
sorry about that--and get to them and tell them that you are 
the ones who are going under.
    You are providing the jobs in this country for the economy 
in this country for us to be able to get out of the slump. 
Without them getting your push, your work, and my suggestion is 
become a unified group with other small business. Talk about 
it. Go and visit. Go talk. Go e-mail.
    The message we have sent has been heard, but you, the 
business people, have got to come and say vocally, strongly, 
openly, publicly, that you are going to go under, and so are 
those hundreds of thousands of jobs that we are hoping are 
going to come back to this country within a very short while.
    Thank you, Mr. Chair.
    Chairman Manzullo. Did you have any further questions, Ms. 
Velazquez?
    Ms. Velazquez. No, Mr. Chairman.
    Chairman Manzullo. We want to thank you all for coming. It 
is a little bit noisy outside. You know, if they were talking 
down the dollar they could go at 10 decibels more, and it would 
not bother me one bit.
    We enjoyed the testimony very much. As I said, all of your 
statements will be made a part of the record.
    This Committee is adjourned.
    [Whereupon, at 3:38 p.m. the Committee was adjourned.]

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