[Senate Hearing 109-1002]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 109-1002


                     THE REPORT TO THE CONGRESS ON
                       INTERNATIONAL ECONOMIC AND
                         EXCHANGE RATE POLICIES

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   ON

THE REPORT TO THE CONGRESS ON INTERNATIONAL ECONOMIC AND EXCHANGE RATE 
                                POLICIES

                               __________

                              MAY 18, 2006

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate/
                            senate05sh.html

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

ROBERT F. BENNETT, Utah              PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado               CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming             TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania          CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky                EVAN BAYH, Indiana
MIKE CRAPO, Idaho                    THOMAS R. CARPER, Delaware
JOHN E. SUNUNU, New Hampshire        DEBBIE STABENOW, Michigan
ELIZABETH DOLE, North Carolina       ROBERT MENENDEZ, New Jersey
MEL MARTINEZ, Florida

             Kathleen L. Casey, Staff Director and Counsel
     Steven B. Harris, Democratic Staff Director and Chief Counsel
               Peggy R. Kuhn, Senior Financial Economist
                         Andrew Olmem, Counsel
                  Aaron D. Klein, Democratic Economist
           Gretchen Adelson, Assistant to Democratic Counsel
   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
                       George E. Whittle, Editor

                                  (ii)




























                            C O N T E N T S

                              ----------                              

                         THURSDAY, MAY 18, 2006

                                                                   Page

Opening statement of Chairman Shelby.............................     1

Opening statements, comments, or prepared statements of:
    Senator Johnson..............................................     2
    Senator Bennett..............................................     2
    Senator Carper...............................................     3
    Senator Bunning..............................................     4
    Senator Stabenow.............................................     4
    Senator Crapo................................................     6
    Senator Reed.................................................     6
    Senator Allard...............................................     7
    Senator Schumer..............................................     7
    Senator Dole.................................................     9
    Senator Sarbanes.............................................    10

                                WITNESS

John W. Snow, Secretary, U.S. Department of the Treasury.........    12
    Prepared statement...........................................    30

                                 (iii)











 
                     THE REPORT TO THE CONGRESS ON
                       INTERNATIONAL ECONOMIC AND
                         EXCHANGE RATE POLICIES

                              ----------                              


                         THURSDAY, MAY 18, 2006

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 9:36 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Richard C. Shelby (Chairman of 
the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The hearing will come to order. We are 
very pleased this morning to welcome Secretary of the Treasury 
John Snow again to testify on the Treasury Department's Report 
to the Congress on International Economic and Exchange Rate 
Policies.
    Secretary Snow, the Treasury report indicates that no major 
partner of the United States met the technical requirements for 
currency manipulation under the Omnibus Trade and 
Competitiveness Act of 1988 during the second half of 2005. 
Many Members of Congress, including myself, find the continued 
imbalance of trade with China to be a significant concern. As 
you will hear this morning, Mr. Secretary, there is 
considerable disappointment that once again, Treasury has 
failed to find a currency manipulation determination with 
respect to China.
    My own view, Mr. Secretary, is that China is manipulating 
its currency, and I would be interested in hearing more this 
morning about why Treasury believes that it is not possible to 
make that determination. Now, I understand the political and 
economic ramifications of doing that. But reforming China's 
exchange rate, Mr. Secretary, is a matter which affects the 
global community and clearly, Mr. Secretary, requires the 
attention of the international community.
    The pace of China's actions will have an impact on China's 
domestic economy as well, now, as on the world economy. While I 
disagree with your assessment on the lack of manipulation, I 
concur that this imbalance is a matter of extreme urgency. I 
will be very interested this morning, and others will be, too, 
to hear more about how international bodies such as GEF, IMF, 
and perhaps the Asian Development Bank can play a role in 
facilitating increased flexibility here.
    In 2005, the U.S. current account deficit reached $805 
billion, Mr. Secretary, or 6.4 percent of GDP. The deficit has 
been growing rapidly since 1997, when it stood at just 1.7 
percent of GDP. Despite these numbers, our economic performance 
has remained strong up until now, with steady economic growth 
and low unemployment. That is the good news. However, signs of 
a gradual adjustment to bring the imbalances to a more 
sustainable level would also be very good news to the Congress, 
the Treasury, and U.S. workers.
    Secretary Snow, this Committee would like to engage you in 
a serious discussion this morning about the specific measures 
that the Administration, led by you, will take in the next 6 
months to move China forward on a flexible rate plan. Over the 
long-term, both the United States and the global economy will 
benefit the most from the continued pursuit of free trade and 
flexible exchange rates policy. The most desirable way to 
reduce our current account deficit would be through stronger 
growth abroad and more open trading markets and policies. I 
look forward to a thorough discussion with you this morning, 
and I know the other Members do, too.
    Senator Johnson.

                COMMENTS OF SENATOR TIM JOHNSON

    Senator Johnson. Thank you, Mr. Chairman. I want to welcome 
Secretary Snow to the hearing this morning, and thank him for 
his appearance before the Committee.
    Chairman Shelby. Senator Bennett.

             STATEMENT OF SENATOR ROBERT F. BENNETT

    Senator Bennett. Thank you, Mr. Chairman, and Secretary, 
welcome to this hearing.
    Recently, we had a hearing somewhat on the same subject in 
the Joint Economic Committee, and I have asked the staff of the 
Committee to give some statistics, which I will lay out for you 
now. My Republican colleagues know I cannot discuss this 
without bringing up some charts, so I will spring a few, and I 
have copies for those who may want them and warn you in advance 
these are the areas in which I am going to pursue the 
questioning.
    The first one shows the current account balances, and the 
colors there, for those that do not have a copy themselves, the 
red color is the United States, and as the Chairman has said, 
the current account balance in the United States deficit has 
been growing ever since 1997. The trend started in 1997, 
continued, ameliorated just a little bit in 2001 and then 
continued on down.
    The China line is relatively flat, and there are other 
forces at work. We have the fuel exporters that are going up. 
We have the advanced economies, and then, we have the other 
developing economies, and you can see from this, it is a 
mixture of the other economies and not just China alone. So, I 
will be questioning you on the impact of fuel prices on the 
account deficit and the other economies.
    The second chart has to do with the fact that the United 
States is the world's largest net debtor. As a group, other 
advanced economies remain the largest creditors. And once 
again, the red, which shows--this is as a percentage of world 
GDP--the United States started to become a major debtor in 
1996, and the trend has continued from 1996 on, has ameliorated 
in 2002 and started to get better in 2003 and 2004.
    But once again, the China line on that chart is relatively 
flat, and the net foreign asset positions that have mirrored 
America's debt have been, overwhelmingly, the other advanced 
economies. So the investments in America have not come from 
China. They have come from our European friends, the Japanese, 
et cetera. I will be discussing these two charts with you and 
the implications of this as we go on, because I think we need 
to focus not only on China but also the impact of the fuel 
exporters and the role that they play in driving up or driving 
down the account deficit.
    Thank you, Mr. Chairman. I look forward to the exchange 
with the Secretary.
    Chairman Shelby. Senator Carper.

             STATEMENT OF SENATOR THOMAS R. CARPER

    Senator Carper. Thank you, Mr. Chairman.
    Mr. Secretary, it is great to see you, and thanks for 
joining us and for your service to our country. Others have 
already mentioned that we are interested in your report on 
currency manipulation. I am anxious to hear what the rationale 
is for concluding that there is no official finding of 
manipulation on the part of China.
    We had before us on another Committee, Mr. Secretary, 
Ambassador Rob Portman, who, as you know, has been nominated to 
be the head of the Office of Management and Budget, and he is 
an old friend and a fellow I like a lot and I admire, as I do 
you. I mentioned to him that I also admired his two 
predecessors in that post, the first of whom is now Governor of 
Indiana, and during his watch as head of OMB, our national debt 
grew by $900 billion and the immediate predecessor to 
Ambassador Portman is now the President's Chief of Staff, and 
under his watch at OMB, the national debt grew by about $1.5 
trillion.
    And today, our trade deficit as of last year was about $750 
billion. And as we prepare to talk with you today about 
currency and whether or not the Chinese are manipulating, and I 
acknowledge that there has been some movement in the value of 
their currency, I also want us to come back and focus on the 
trade deficits, how we are doing there, and I would like to 
focus a bit on the budget deficit and how we are doing there.
    And finally, I would like to hear from you any progress 
that the President's Working Group is making with respect to 
the Terrorism Risk Insurance Act, and particularly, I would be 
interested to know how the Federal Government is working with 
the private sector to develop a comprehensive approach to 
terrorism insurance, and I am sorry to say that that is an 
issue that is not likely to go away.
    And finally, I look forward to working with you, Mr. 
Secretary, and with others on this Committee and across the 
aisle and in the Administration as we try to create a world 
class regulator for Government Sponsored Enterprises while also 
preserving the unique and crucial mission of the GSE's.
    And Secretary, thank you again for joining us. We look 
forward to hearing from you and having a chance to explore some 
of these issues with you today. Thank you.
    Thanks, Mr. Chairman.
    Chairman Shelby. Thank you.
    Senator Bunning.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Thank you, Mr. Chairman.
    Thank you, Secretary Snow, for joining us today to testify. 
I am glad we are holding this hearing today. This is an issue 
that is important to me, and I have been talking about it for 
quite a while. I am glad that many others share my concerns and 
that more attention is being paid to our currency exchange 
rates, particularly with China.
    I have long been a critic of our trade relationship with 
China. I opposed permanent normal trade status with them, and I 
still think that it was the wrong move. China continues to 
oppress its people and act aggressively toward Taiwan. In my 
view, China has not yet shown itself to be a responsible 
trading partner deserving favored status.
    Because of cheap labor, Chinese goods have replaced 
American goods all over the marketplace. Those goods have only 
been made cheaper by the lower value of the Chinese currency. I 
support international trade, but we have to be careful when 
trading with countries that use artificial means to get huge 
price advantages.
    Last week's report by the Treasury Department does not make 
me feel much better. I am glad that the Administration and 
others share my concerns about the value of the Chinese 
currency, but not much progress has been made since China 
agreed to let their currency float.
    Since the initial move last July, the yuan has strengthened 
by less than 1.5 percent to the dollar. That makes me wonder if 
they are really letting the currency float, or are they letting 
it move a bit for show? Mr. Secretary, I appreciate your 
efforts so far to engage China on the issue, but I think more 
needs to be done quickly. The test of whether the effort of the 
United States and others is working is the result, and so far, 
the results are not that good.
    You stopped short of calling China a manipulator because 
you did not have enough evidence. I want to know what it is 
going to take for you to find more evidence. I want to know how 
much progress we are going to see and how long it is going to 
take. Last year, it took the certainty of Congressional action 
to get China to move, and I want to know if we will have to 
have more Congressional action to keep China moving.
    I look forward to the hearing and your answering our 
questions. Thank you, Mr. Chairman, for the time.
    Chairman Shelby. If I could digress for just a minute, we 
have a quorum, Mr. Secretary, if you will indulge us, it is 
hard to get a quorum sometimes.
    [Recess.]
    We will go back to regular order. Senator Stabenow is 
recognized on today's hearing.

              STATEMENT OF SENATOR DEBBIE STABENOW

    Senator Stabenow. Thank you, Mr. Chairman, and welcome, Mr. 
Secretary.
    This is an incredibly important issue for my State in 
Michigan as well as the country, and I think today, while we 
are focused on exchange rates, there is really a larger agenda 
that is very significant for our country, as we are in a global 
economy: The question of how we are going to succeed on behalf 
and how we are going to support American businesses and 
American workers. Are we going to create a level playing field 
or not in this country? This is a very big issue.
    And currency manipulation, as you know, Mr. Secretary, is a 
very big part of that. More and more businesses are facing 
unfair trade practices. How many jobs are we going to lose 
because of currency manipulation before we decide that 
technically, we have met the requirements. I agree with Senator 
Bunning in his statement in terms of the question of what is it 
technically? If it is not now, tell us what technically we need 
to do in order to be able to say what we know is already going 
on. How many patents are we going to have stolen before we take 
a stand on this?
    Today's CEO's of our major auto companies are in town, and 
we are going to hear about this issue and not just with China. 
From an auto industry standpoint, this is about Japan. We saw 
yesterday Japan come forward to make statements again that 
directly relate to what is happening with the yen, and it has a 
profound impact on the auto industry.
    So we need to be taking action. This is the 23rd 
consecutive Treasury report, and the message continues to be 
the same: We are very upset, but we always stop short of fixing 
the problem. So my question, Mr. Secretary, is when are we 
going to fix the problem rather than just being upset?
    For example, on September 9, 2004, the Assistant Secretary 
for Public Affairs for Treasury said China must continue to do 
more to ensure progress continues. We will act as aggressively 
as necessary to achieve results on this issue. What does that 
mean? What is acting aggressively? When are we going to see it?
    Yet, over the past 2 years, the yuan continues to be 
undervalued anywhere from 15 to 40 percent. On top of health 
care costs, on top of differentials in wages and pensions, we 
are adding a 15 to 40 percent tax and a penalty on the American 
businesses trying to compete in the global economy. I do not 
know how in the world we think that is in our best interests.
    I continue to tell Michigan constituents who are losing 
their jobs and worried about their pensions that it is the 
Government's responsibility, the Federal Government's 
responsibility, to make sure there is a level playing field. 
But year after year, report after report, the Administration 
threatens to do something but has not solved the problem. So, I 
am very interested in knowing what is going to happen before 
the 24th report, and are we going to stop just rattling the 
sabers, and are we going to actually stand up and fight for 
American businesses and American workers?
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you.
    Senator Crapo.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you very much, Mr. Chairman, and Mr. 
Secretary, I also appreciate your being here. I will defer 
making a long statement and simply indicate that I share the 
concern that you heard from so many of my colleagues about the 
Treasury's decision not to designate China as a currency 
manipulator. I agree with my colleagues on this issue and look 
forward to a robust discussion with you here at the hearing.
    Thank you for coming.
    Chairman Shelby. Senator Reed.

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you very much, Mr. Chairman.
    This is a very important hearing, and the state of the 
international financial system is not good, and this 
Administration's policies are part of the problem rather than 
part of the solution. The U.S. contribution to the large 
payment imbalances that now characterize the international 
financial system begins with our own budget deficit.
    President Bush inherited a $5.6 billion, 10-year budget 
surplus, achieved through responsible budget policies and a 
strong economy in the 1990's. That legacy of fiscal discipline 
has been squandered and turned into a legacy of deficits and 
debts. The result has been a sharp decline in our national 
saving and increased borrowing from the rest of the world to 
finance a budget deficit and excess spending.
    The consequence of our borrowing binge is that the United 
States is by far the world's largest international debtor. Last 
year, the U.S. current account deficit was $805 billion, which 
means that spending by American citizens and the Federal 
Government outstripped our income by an amount equal to 6.4 
percent of GDP.
    Borrowing such large sums from the rest of the world does 
not strike me as a wise or sustainable economic strategy. 
Foreign holdings of U.S. Treasury securities have more than 
doubled since President Bush took office. Almost all of the 
increase in publicly held debts has been purchases of U.S. 
Treasury securities by foreigners, including foreign 
governments. The Governments of Japan and China are our two 
largest official creditors. China has increased its holdings of 
Treasury securities by 423 percent since 2001, and much of that 
increase has come as a result of purchases by their Central 
Bank to prevent the country's currency from appreciating 
against the dollar.
    Last week, the Administration resisted branding China a 
currency manipulator, but even you, Mr. Secretary, acknowledged 
the pace of change by Chinese leaders is slow and 
disappointing. We cannot turn a blind eye to China's role in 
creating large payment imbalances, but I come back to our own 
role: Our Nation cannot prosper in the long-run with persistent 
large budget deficits that drain our national savings and a 
large trade deficit financed by foreign borrowing.
    Strong investment financed by our own national savings, not 
foreign borrowing is the foundation of a strong and sustained 
economic growth. If we do not change course, our children and 
grandchildren will have to repay these irresponsible debts, and 
their standards of living will suffer.
    Mr. Secretary, I look forward to your testimony and to 
exploring the policies we can pursue to address the imbalances 
that exist in our international financial system and create 
more broadly shared prosperity for the United States and its 
trading partners.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Allard.

               STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Mr. Chairman, I want to thank you for 
holding this hearing. As you know, as we are all realizing that 
the International Economic and Exchange Report is of great 
interest to the Committee. And we have had many informative 
discussions, I think, at previous hearings, and I am sure 
today's hearing will be just as educational.
    The Treasury Department's report is required under the 
Omnibus Trade and Competitiveness Act of 1988 and reviews the 
effects that significant economic developments have had on the 
United States and foreign countries. And this report also 
evaluates certain factors that may bring about those economic 
developments.
    As one of the rising economic powers of the world, much of 
the attention obviously is devoted to China and in particular 
China's movement toward a free-floating exchange rate. I will 
be very interested to hear what China has made as well as what 
remains to be done and what the Administration is doing to get 
them here.
    We must look beyond the exchange rate, though, to develop a 
consistent and comprehensive policy for dealing with China. As 
their economy continues to grow, how will their trade and 
monetary policies affect the United States, and how should we 
respond? Today's hearing will help us better understand this 
very complex matter.
    I will also be interested in hearing more about our current 
accounts deficit, which currently stands at $821 billion. What 
are the economic implications of the current accounts deficit 
for our economy as well as for our economic security? I would 
like to thank Secretary Snow for appearing before the Committee 
today, and as always, Mr. Secretary, it is a lively and 
informative discussion when you are here, and thank you for 
your testimony.
    Chairman Shelby. Senator Schumer.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary, and welcome back to the Committee. As I have said 
before, Senator Graham and I appreciate that you have become 
more an ally on the issue of China currency over the last year, 
and it is good to see you again.
    Since I have only a few minutes I want to get right to the 
point. Despite my renewed confidence that you share our view 
that China should and could reform its currency practices at a 
faster pace, I am very disappointed in Treasury's recent Report 
to Congress on International Exchange Rate Policies, as 
disappointed as I am in China's progress to date.
    In fact, while I came back from China believing that it was 
moving forward on the currency issue, I have now scaled back my 
optimism a notch or two. I now believe that China is only 
facing forward but not yet moving forward. They simply made too 
little measurable progress since July for any reasonable person 
to argue that China has moved. The lack of any real 
appreciation of the yuan in recent months supports that view.
    Now, in the report you issued last week, the executive 
summary says that the Treasury Department is, ``unable to 
determine from the evidence at hand that China's foreign 
exchange system was operated during the last half of 2005 with 
the purpose, that is, with the intent, of preventing 
adjustments in China's balance of payments or gaining China an 
unfair competitive advantage.''
    With all due respect, Mr. Secretary, this is a technical 
and legalistic dodge that prevents the Administration from 
stating publicly what is obvious to every one of us: China is a 
manipulator, and the Administration is simply afraid to say so. 
After all, if it walks like a duck and quacks like a duck, it 
is a duck. Calling it a swan does not change that simple fact.
    Now, let us look at what happened to the yuan in the 4 
weeks since President Hu visited the United States. From April 
17 to 21, the yuan did not appreciate at all, even though the 
week coincided with President Hu's visit here. From April 24 to 
28, the same story. From May 1 to 5, again, the same story.
    Finally, last week, the yuan appreciated by one-tenth of 1 
percent. It is essentially just as flat as it was before China 
eliminated the dollar peg, and during the same 4 weeks, the 
other major Asian currencies were all appreciating against the 
dollar.
    This chart goes back to April 1 of this year. It tells a 
pretty convincing story. Every other currency has appreciated: 
The sterling, the franc, the yen, the Australian dollar, 
Canadian dollar, euro, Korean won, Taiwan dollar, but not the 
yuan.
    It defies logic to say that the yuan is not being 
manipulated when every other currency has appreciated 
significantly, and it stays right here. And we know that. We 
know the Chinese Central Bank is intervening to keep it low. 
Despite the dollar's decline against every other currency, the 
yuan appreciated only 0.2 percent.
    Now, the second chart shows a similar trend. This graph 
shows U.S. dollar exchange rates for various Asian currencies 
since July, when China reportedly removed the peg. The green 
line is Malaysia; the orange the Japanese yen; the purple is 
the South Korean won. Particularly with South Korea and Japan, 
you can see lots of movement because of market forces that were 
actually allowed to work. But if you look at the blue line, it 
looks as dead as, unfortunately, a patient on an EKG who has 
expired. There is no movement. That is the yuan, despite the 
movements of every other currency.
    So one of the things I want to discuss with you, Mr. 
Secretary, when it is my turn for questions is this: You argue 
that you cannot find the Chinese guilty of manipulation since 
we cannot tell their intent, but looking at this data and this 
chart, how can you possibly argue that it is an accident? It 
defies credibility, America's credibility, to believe that it 
is, and yet, that is essentially what you are arguing, and it 
is absurd considering the evidence.
    I look forward to discussing this issue with you during the 
question and answer period.
    Chairman Shelby. Senator Sarbanes.
    Senator Dole, I apologize.

              STATEMENT OF SENATOR ELIZABETH DOLE

    Senator Dole. Thank you. I just came in a moment ago, Mr. 
Chairman. Thank you very much.
    Secretary Snow, thank you for joining us today. While your 
report focuses on a number of different countries, obviously, 
China remains the major focus. I want to thank you for your 
efforts, for your accessibility on the issue of the Chinese 
currency peg, but I have to say that I am again greatly 
disappointed with the failure to recognize China's currency 
manipulation.
    Chinese currency is grossly undervalued. The steps taken by 
China last summer and again earlier this week to revalue the 
yuan, while welcome, cannot even be described as baby steps in 
addressing the problem of China's tight currency controls. I 
know firsthand through my own experiences with the Chinese 
Government back during the 1980's when I served as President 
Reagan's Transportation Secretary that negotiations can be 
difficult and frustrating, and I appreciate many of the 
sentiments that you express in your report.
    And I want to quote, for example, this important excerpt: 
``while these developments suggest that progress is being made, 
China's advances are far too slow and hesitant, given China's 
own needs and its responsibilities to the international 
financial community. The delay in introducing additional 
exchange rate flexibility is unjustified given the strength of 
the Chinese economy and the progress of China's transition. 
China needs to move quickly to introduce exchange rate 
flexibility at a far faster pace than it has done to date.''
    While I may have used some stronger adjectives, Mr. 
Secretary, this statement demonstrates our mutual concern. How 
many times have we said in this Committee, in North Carolina, 
and across the country, manufacturers have been hurt by China's 
undervaluing its currency. When I talk to industry leaders 
about this issue, many of whom have been forced to lay off 
loyal, hardworking North Carolinians because of unfair 
competition from China, it is just not enough for me to say I 
agree, and the Administration agrees.
    We must act. We must take action and generate results. 
Secretary Snow, I know that you and the President have invested 
a great deal of time and energy in working with the Chinese 
leadership to address this issue, but we must bolster our 
efforts. In the coming months, the Senate is expected to again 
consider this issue. It is my hope that through aggressive 
talks and strong pressure from the Administration and Congress, 
we can make real and significant progress to induce China to 
freely float its currency.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman. I want 
to thank you for calling this important hearing on the Treasury 
Department's International Economic and Exchange Rate Policies 
Report. And I join with my colleagues in welcoming the 
Secretary. I think we are going to have an interesting hearing 
this morning.
    [Laughter.]
    Mr. Chairman, I commend you for your continued interest and 
active oversight on this issue. The report, which is the basis 
for today's hearing, is required under the Omnibus Trade and 
Competitiveness Act of 1988. In fact, that title came out of 
this Committee, and this Committee has taken a keen interest.
    The legislation requires: The Secretary of the Treasury 
shall analyze on an annual basis the exchange rate policies of 
foreign countries in consultation with the International 
Monetary Fund and consider whether countries manipulate the 
rate of exchange between their currency and the U.S. dollar for 
the purposes of preventing effective balance of payments 
adjustments or gaining unfair competitive advantage in 
international trade.
    As I stated previously in these hearings, it has been my 
view for some time that some nations, first and foremost China, 
have been doing exactly that with their currency in order to 
gain unfair competitive advantage in international trade.
    The facts supporting this position are clear: China, Japan, 
Taiwan, South Korea are all running material global account 
surpluses and significant bilateral trade surpluses with the 
United States. I have a chart that shows the global current 
account surpluses and bilateral trade surpluses of each of 
these countries. I want to focus especially on China. This is 
China's trade surplus, Mr. Secretary. That is 2000 over there 
on the left, and this is 2006 over here. It has run up from 
maybe about $70 billion, and it is now up to almost $200 
billion.
    Senator Schumer. It is out of control.
    Senator Sarbanes. The largest bilateral trade deficit 
between any two countries in history.
    And of course, as these countries run these gigantic trade 
deficits with the United States, they have been accumulating 
vast amounts of foreign reserves. Now, let me just show you, 
this is China's stock of foreign reserves. And this ascending 
line over here is almost up to $900 billion, foreign reserves 
that China has accumulated. When you look at the European 
Union, where they are not playing this game, you get quite a 
different picture, and you also, this is the European Union. 
They let the currency move, and then, you get the adjustments, 
and this is what has happened to their stock of reserves over 
this period, which reflects the chart Schumer showed, where 
they were getting appreciation in their currencies vis-a-vis 
the dollar and therefore helping to straighten out the trade 
imbalances, which is the mechanism by which, as I understand 
it, we adjust these matters.
    Now, these trade imbalances are breathtaking. I want to 
show the trade deficit, U.S. trade deficit and how it has grown 
since 2001.
    Senator Schumer. Ooh.
    Senator Sarbanes. I mean, it almost leaves you speechless 
to look at this chart. That is the U.S. trade deficit. This is 
2005; I think the largest trade deficit in our history, the 
largest trade deficit in our history. The current account 
deficit is even a little worse; hard to believe, but the 
current account deficit is worse. It is now at 6.5 percent of 
GDP. This is the current account deficit. The U.S. current 
account deficit.
    Senator Schumer. What was the first year on this chart? I 
cannot see.
    Senator Sarbanes. 1980; and this is 2005, $805 billion, 6.5 
percent of GDP.
    You are the Secretary of the Treasury. I always thought 
Secretaries of the Treasury worried about this kind of thing, 
that it was kind of a prime item on their agenda, not something 
to be dismissed or taken lightly. The sharp deterioration in 
our international net position has left us at an unsustainable 
level. Warren Buffett recently said right now, the rest of the 
world owns $3 trillion more of us than we own of them. And he 
went on: In my view, it will create political turmoil at some 
point. Pretty soon, I think there will be a big adjustment.
    Buffett is not along in these warnings. The International 
Monetary Fund recently stated in the World Economic Outlook, 
the large current account deficit in the United States 
increases the risk of a downward adjustment in the U.S. dollar, 
which would push U.S. interest rates up sharply and possibly 
lead to a recession.
    Despite these warnings, Treasury has not found any country 
guilty of manipulating this currency. Actually, last year, Mr. 
Secretary, you said if current trends continue without 
substantial alteration, China's policies will likely meet the 
technical requirements of the statute for designation. Since 
then, the Chinese currency has appreciated by just over 3 
percent.
    At the hearing last year, I specifically asked you whether 
a move of that magnitude, 3 to 5 percent, would be acceptable. 
You responded, this adjustment has to be material and has to be 
significant. And you went on to state that failure to do it, a 
significant move, will weigh very heavily on us when we do our 
next report.
    Your report this year says far too little progress has been 
made. Yet despite the threats from last year's report, a 
failure on China's part to make a material movement--most 
experts think it would need to move 20 to 40 percent--the 
Treasury continues to fail to designate China. In failing to do 
so, the Treasury states it is unable to determine from the 
evidence at hand that Treasury's foreign exchange system was 
operated during the last half of 2005 for the purpose of 
preventing adjustments in China's balance of payments or 
gaining an unfair competitive advantage.
    Let me just show you one other chart. Do we have this? 
Treasury found that China was manipulating its currency in May 
1992 and December 1992. That was Bush I Administration. This 
was before Clinton came into office; the last year of the Bush 
I Administration. Look at these comparative figures. This was 
the trade surplus with the United States that they found: $12.7 
billion, $16.7 billion; percent of GDP, 3.1, 3.5. This is back 
in 1992. Global account, current account, $12.2 billion, $13.5 
billion, 3 percent, 2.8 percent. On the basis of those figures, 
they found currency manipulation.
    Chairman Shelby. Can you move that around just a little bit 
so we can see it?
    Senator Sarbanes. On the basis of those figures, they found 
currency manipulation.
    Senator Schumer. That was China?
    Senator Sarbanes. China.
    Chairman Shelby. Yes, the Bush I.
    Senator Sarbanes. Now, May 2006, $202 billion trade 
surplus, 9.1 percent of GDP; global account balance, $161 
billion, 7.2 percent. These figures dwarf these figures, and 
yet, the Treasury does not find currency manipulation. And 
these are the accumulation of reserves are up here to $209 
billion. I mean, this thing is just going on and on and on.
    Now, you can find currency manipulation, and then, you can 
not go into negotiations just by sending us a finding that it 
would be seriously detrimental impact on vital national 
economic and security interests. But you have not done that. 
You have not done that, and obviously, this is a matter we want 
to pursue in the question period.
    Mr. Chairman, I know we have a vote. Thank you very much.
    Chairman Shelby. Mr. Chairman, we are going to recess. We 
have a vote, and we are coming to the end of the second 
warning, so we will come back as soon as the vote--or if 
Senator Bennett comes back, he can start the hearing.
    Thank you. We are in recess.
    [Recess.]
    Senator Bennett. [Presiding.] The hearing will come to 
order.
    The Chairman and other Members of the Committee are in the 
process of voting, but the Chairman has asked that I reconvene 
the Committee in the interests of moving things along. I think 
it may be that he does not want to hear my questions or the 
observations that I may make here. It is fairly clear, Mr. 
Secretary, that the thrust of the hearing is going to be on 
China, and I think my colleagues are more than qualified to 
raise all of those questions, so I would like not to, not that 
I do not think that is an important issue but because I think 
it gets redundant, and I want to look at other aspects of the 
international trade situation independent of China.
    If I could put the charts back up, let us go to the chart 
that deals with current account balance. Do you have a copy of 
that chart in front of you, Mr. Secretary?
    Oh, I am sorry. I am told you have not yet made your 
statement.
    Secretary Snow. I can make a brief statement.
    Senator Bennett. I am sorry. I assumed that had been done.
    Secretary Snow. I will be very brief.
    Senator Bennett. So why do you not make your opening 
statement, and then, we will go to question.

                   STATEMENT OF JOHN W. SNOW

           SECRETARY, U.S. DEPARTMENT OF THE TREASURY

    Secretary Snow. I have submitted a statement for the 
record. I will make a brief statement.
    I gather from the comments that I have received before that 
the Committee would not have written the report the way that we 
did.
    Senator Bennett. I think that you have made an accurate 
assessment of the Committee's----
    Secretary Snow. I think we arrived at the right conclusion, 
and in response to the questions, I will be able to elaborate 
further why. It took us a long time to get into the current 
account situation, and it will take us awhile to get out. As 
Chairman Greenspan and Chairman Bernanke have said, the best 
way to get out of this is to let the market adjustment 
processes work. We are trying to encourage that. We are trying 
to put in place a framework, Senator Bennett, Senator Bunning, 
that will allow an effective global adjustment process to take 
place in which the United States raises our savings rates, 
reduces our deficit, in which Europe grows faster and China and 
Japan. They need to grow faster.
    They have fallen short of their potential, and that means 
they are not generating as much disposable income. They are not 
generating as much in the way of investment opportunities, and 
that lack of growth there, that shortfall on growth contributes 
directly to this situation.
    And the third piece of this equation, of course, is China 
and inflexible exchange rates, because they prevent this 
adjustment process from occurring. I made it clear in the 
report we are not happy with this situation. We want to see 
China move faster. I think there is agreement on that. And we 
are going to continue to press China forward to move faster. 
That is an overview of the Administration's approach to this 
issue, and in the interests of time, I will keep my opening 
comment brief.
    Thank you.
    Senator Bennett. Thank you very much. Again, my apologies 
for not realizing that you had not had an opportunity to make 
an opening statement.
    Picking up from what you have said, let us go to the chart. 
The colors on the chart here are different from the colors I 
have passed out, so that was a little confusing to me, but the 
red line, which is heading south, that is the American account 
balance. These are all expressed as a percentage of world GDP, 
and these come from the IMF World Economic Outlook. These are 
not figures that were put together here in the Senate. The 
almost straight line through the middle, dark blue on the chart 
there as well as on the chart you have in front of you is 
China.
    And the two lines that are above China, the green and the 
black one on the one I have and the darker on that chart, the 
green is the fuel exporting economies, the fuel exporters, and 
the other are the other advanced economies. And the point that 
I want to make from this chart and get your comment on is that 
the American account deficit started growing significantly in 
1997.
    This is a trend that is now almost 10 years old. It was not 
triggered by an election in the United States. It was not 
triggered by any one administration in the United States. It 
was triggered by a series of world trends and events. And the 
one corresponding upward trend to our downward trend that is 
the most pronounced are the fuel exporters.
    So my question to you is would it be helpful if, in the 
United States, we were to take actions to increase our domestic 
production and therefore our dependence on foreign fuel 
exporters? And indeed, would that not be more helpful in 
bringing the American account deficit under control than 
concentrating entirely on Chinese currency?
    Secretary Snow. Senator Bennett, I agree with you very 
much. This has been in the making for a long time, and the high 
energy prices that we have lived with for some time now show up 
in very large surpluses in the oil exporting states. And 
America's dependence on oil from that part of the world 
significantly increases our net imbalances. So absolutely, if 
we can make ourselves less dependent on energy from faraway 
places, we would do ourselves a real favor in terms of the 
current account issues; absolutely.
    Senator Bennett. I make that point, because we get 
exorcised about China, and some hysterical commentators on 
cable news go overboard talking about China, and then, when the 
discussion about greater drilling on the outer continental 
shelf or opening up ANWR, no, no, they do not connect that to 
the account deficit, but as this chart makes clear, that is a 
much greater contributor to the account deficit than anything 
China is doing.
    Secretary Snow. I think it is one-third, if I recall the 
numbers, of our current account deficit is directly related to 
oil.
    Senator Bennett. That is an interesting statistic. Could 
you put a percentage on China's contribution to the current 
account deficit? I am assuming it would not approach one-third.
    Secretary Snow. No, well, we are in imbalance there about 
$200 billion on a base of $800 billion, so one quarter. The oil 
is significantly larger in terms of the imbalance itself, as a 
contributor to the imbalance.
    Senator Bennett. Thank you. Do you believe that enactment 
of protectionist trade barriers, whether they are formal 
tariffs or they are informal nontariff barriers, would be a 
viable solution to the trade imbalance?
    Secretary Snow. No, Senator, I do not. I think it would be 
counterproductive. I do not think it would have the intended 
effect of reducing our deficits with the world. It might with a 
particular country, but in China's case, China has become the 
assembler of manufactured products from Asia that used to be 
produced in Asia. They now assemble them there. They import the 
materials; they assemble them; and they export them.
    What we see is simply a diversion of what goes on in China 
back to some other place in Southeast Asia for most of those 
activities, so I do not think it would be effective, and in 
fact, it would be counterproductive, because it would, of 
course, invite protectionist policies in other parts of the 
world, and that would hurt our exporters and would shrink the 
size of the globe and reduce global prosperity. Now, I think 
that is clearly the wrong way to go.
    Senator Bennett. Thank you very much.
    Senator Reed.
    Senator Reed. Thank you very much, Senator Bennett.
    Mr. Secretary, according to the Treasury statistics, 
China's ownership of United States debt is now over five times 
greater than it was in January 2001, rising from about $60 
billion to over $300 billion, and their overall dollar reserves 
have grown even more. Now, if China is not buying dollars to 
keep their exchange rate from appreciating, what are they 
doing?
    Secretary Snow. Well, of course, pardon me, China is 
generating huge amounts of savings, and we are not on a net 
basis. And that is the crux of this problem. China's surplus 
savings is, some part of it, is finding its way into United 
States capital markets, which is why I said earlier, Senator 
Reed, the solution to this problem is really threefold.
    One is getting the United States to have higher savings 
rates, and that is partly the deficit that we talked about 
earlier. But another part of this is getting China to develop 
their own domestic economy, put less emphasis on exports and 
more emphasis on domestic demand so they will absorb more of 
those savings. And we have heard from the Chinese they intend 
to do that. They intend to push development of their domestic 
market to absorb their savings, and then, those yuan would not 
be flowing into dollars to buy capital assets in the United 
States. They would be going into consumer goods in China. I 
think that is a healthy way to approach these imbalances.
    Senator Reed. There is no portion of their policy to 
acquire U.S. Treasury debt that is related to their currency 
levels? It is completely just the market activity.
    Secretary Snow. Well, what we know is they have these very 
high savings rates, and the savings rates exceed their own 
domestic investment rates. So that excess finds its way into 
the world market. Part of it goes into other things, but part 
of it goes to the U.S. markets, and that is really what this 
phenomenon is about.
    Senator Reed. But I just want to be clear. So you see no 
conscious correlation between their acquisition of Treasury 
securities and holding dollars and maintaining their yuan? 
There is nothing there? It is completely coincidental.
    Secretary Snow. Well, they have a policy of not having a 
flexible yuan. The evidence is pretty good that the effect of 
not having a flexible yuan is to have the yuan trading at a 
level that is somewhat lower than it would be if they had a 
flexible yuan; that is, if the yuan was really based more on 
the interplay of demand and supply and market forces. I think 
that is what almost all the analysis suggests. Well, that leads 
to a larger trade surplus, and that trade surplus leads to the 
ability for them to translate that surplus into purchases of 
capital assets in the United States and elsewhere. So there 
certainly is an indirect relationship.
    Senator Reed. But does that conscious policy also require 
them to buy Treasury securities, that is, is their acquisition 
of securities and holding of dollars related to the peg they 
have established on the yuan?
    Secretary Snow. Well, as I said, there is an indirect 
relationship to the extent that the currency is held below the 
level that the market would take it to. That would stimulate 
more exports and reduce imports, which will lead to a trade 
balance, which will lead to the surpluses that come back into 
the rest of the world. Sure.
    Senator Reed. You mention, Mr. Secretary, that part of an 
approach to resolving this issue is stimulating domestic demand 
in China. What steps is the Administration taking to help 
achieve that?
    Secretary Snow. Senator, the President of China was here 
several weeks back, now maybe 3 or 4 weeks ago, and in his 
comments on the South Lawn, he stated the policy to develop 
their domestic markets. That is a policy that I have urged on 
China. It is a policy that Under Secretary Adams has urged on 
China, and now, we need to see the actions, but the actions are 
actions that the Chinese have to take, investing in their 
safety net, in pensions and reducing taxes and a variety of 
things that they are talking about doing.
    Senator Reed. But you are suggesting there is nothing 
directly the United States can do to help increase their 
domestic demand?
    Senator Bunning. Sure, there is.
    Secretary Snow. Well, they are a sovereign country and 
responsible for their own macroeconomic policy. So they have 
articulated this policy. We have urged them to do so. It is the 
right policy for them. It is the right policy for the global 
economy. And now, we are going to watch their actions to see 
that they follow through. But we are providing technical 
assistance. We have a financial attache in Beijing who works 
closely with the economic authorities in China. We have a 
number of delegations back and forth. We continue to meet with 
our counterparts in the Economic Ministry and the Central Bank.
    So there is a lot of interaction here between us where they 
are drawing on our lessons, and we are providing technical 
assistance on things they can be doing. One of the things they 
can be doing is allowing foreign investment in their financial 
system. We are urging them to do that, disappointed that they 
are not moving faster there, because a better functioning 
financial system will mobilize those savings and give them 
higher returns and make them available to higher uses. So there 
are a lot of things that we are working with them on.
    Senator Reed. I would assume, Mr. Secretary, that you would 
agree that we would be better off financing our investment with 
national savings rather than with foreign savings; is that 
correct?
    Senator Bennett. He said that.
    Secretary Snow. Senator, the imbalance we have means we 
cannot do that. Our economy is growing at such a good clip, and 
I think you want us to continue to have this economy grow. One 
way to finance our own investments is to grow a lot more 
slowly. We could do that, but that would not be a good outcome 
for us or for the global economy. I mean, one way to think of 
this, Senator, is a recession would solve this problem real 
fast. Nobody wants that, do they?
    We could solve this problem real fast by the United States 
growing much more slowly. You would not urge that. I would not 
urge that, and neither would the rest of the world. The United 
States is at the center of the high growth rates. We are the 
engine of the global economy today. So, I think we want to 
solve the issue of the global imbalances but sustain high 
growth rates for the global economy.
    Senator Reed. Thank you.
    Chairman Shelby. [Presiding.] Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    I am going to go to the mundane, as Senator Bennett said. 
Your report stops short of calling China a currency 
manipulator. What further evidence do you need to make such a 
finding? We all seem to have made it up here, but the 
Administration has not.
    Secretary Snow. Senator, the lack of a finding should not 
be in any way interpreted as satisfaction with China. I think 
we have a heated agreement here among ourselves here that we 
are very disappointed, very unhappy with China's behavior on 
its currency. I will just stipulate to that. We did not make 
the finding, the specific designation here this time because in 
the end, we concluded, given all the fact, all the 
circumstances, the statutory test, which is a test that 
includes intent, intent was not met. The statute requires an 
intent to manipulate the currency for the purpose of 
frustrating the global adjustment process.
    Senator Bunning. And the Administration absolutely feels 
that there was no intent?
    Secretary Snow. Well, we were not completely satisfied that 
the intent test was met. Part of the reasoning there, Senator, 
if I could take a minute, Senator, part of the reasoning there 
was the expressions of the political and economic leadership of 
that country to move to flexibility. They have said that over 
and over again. They have taken some steps--too small, too 
short--but they have taken some steps to put in place this 
trading mechanism; did the revaluation within the time period 
of this report, last July.
    We have seen some movement, way inadequate. They have 
articulated this policy of not running a surplus. The President 
said that on the South Lawn. They have articulated a policy of 
developing domestic demand and allowing more foreign investment 
in the face of their leadership, including the top leadership 
of the country expressing this, a clear intent to address the 
problem.
    We felt that it was not appropriate at this point. Actions 
speak louder than words. We know that.
    Senator Bunning. Mr. Secretary, I have heard this song 
before. You were not here. I was in the House, 1987. We have 
been discussing China's talking one way and acting another. My 
frustration with that is that we are still believing what they 
said, although they never have done very much to back up their 
words. Are there any signs that China is going to allow 
strengthening, other than talk?
    Secretary Snow. There are some, Senator. There are some. 
They have now entered into an agreement with the Chicago 
Mercantile Exchange, just finalized, to allow hedging on their 
currency.
    Now, clearly, you would not put in a hedging vehicle unless 
you had some expectation of a currency that created risks of 
fluctuation. They are allowing more foreign information into 
their financial sector, and they are allowing their banks, more 
and more of their banks, to trade currencies. So they are doing 
some things, not enough; I do not want to give you the 
impression I am satisfied, because I am not satisfied.
    Senator Bunning. No, but Mr. Secretary, is the value of the 
yuan driven by the market, or is it really driven by the 
Chinese Government, since it is only allowed to trade in very 
narrow bands, less than a third of a percent up or down from 
the price set by the Central Bank?
    So how much progress can talking make? And you have said 
that the Administration pretty well cannot do anything about 
it, but I will guarantee you the people sitting here in these 
seats up here at the Committee can do something about it. You 
can veto the bill, but we can sure as heck pass one that 
requires China to get in line. And there are enough of us 
frustrated up here to the point of saying to the Administration 
we are sorry, Administration, you are not doing enough. And 
when you have an opportunity to do something, you back off.
    Secretary Snow. Senator, as I say, I think we have a heated 
agreement here. You are frustrated; we are frustrated. We are 
very unhappy we are not seeing more action. We want to see 
action.
    I will say though, that many commentators, upon seeing our 
decision, said now that the threat has been removed for the 
next few months, 6 months, the possibility of China raising 
their currency value and allowing it to get more in alignment 
with market forces goes up. I actually think that is the better 
reading of the situation.
    Senator Bunning. Well, for 20 years, it has not been.
    Thank you.
    Chairman Shelby. Thank you.
    Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman.
    Mr. Secretary, I know you are hearing, and it is not the 
first time, the frustration that we have here in the Committee, 
and this is not a theoretical debate. Today, there is 
something, an ad here that is in CQ Today, Congressional 
Quarterly, the truth about U.S. automakers' jobs and where they 
come from. And even though every time we see a plant close from 
a U.S. automaker, we are not seeing one automatically open from 
our people from China, Japan, or Korea, 80 percent of the auto 
parts used by our automakers are American. You are talking 
about millions and millions of jobs.
    This is not theoretical in my State or any other State, and 
every year, we wait; 23rd report. We are talking about 
thousands more people who are going to have to decide how do 
they take care of their family in the next week or the next 
month or the next year? This is not theoretical.
    I know my colleagues have spoken about China, but I want to 
speak about Japan, because I concur with my colleagues on 
China. But Japan's longstanding manipulation in terms of their 
actions on currency hits us directly with the auto industry. 
While Japan has halted its massive interventions over the last 
year or so and therefore not provided an absolute, clear-cut 
reason to cite them, they have continued to verbally intervene 
in global currency markets.
    This type of intervention that prevents the yen from 
strengthening contradicts several G-7 meetings worth of 
statements about how free markets should set currency values. 
Just take the last few weeks as an example. Following the G-7 
meeting, the yen began to strengthen against the dollar, and a 
number of very senior Japanese officials began to make pointed 
comments about rapid fluctuations and other similar comments.
    This time, Under Secretary Adams made some public comments 
that really clarified the United States and G-7 position and 
counteracted this verbal intervention, and in response, 
Minister Tanagaki and others made comments that a weak yen is 
necessary for Japan's export-oriented industries. He further 
indicated that a yen below 110 could damage the profits of 
export-oriented Japanese companies.
    Well, why are we not worrying about damaging the profits of 
American companies and the loss of American job? And I would 
gladly have you come to Michigan, and whether it is 
Southeastern Michigan, the west side of Michigan, Northern 
Michigan, it is not just autos; it is furniture; it is auto 
suppliers; it is computers. I can show you company after 
company that is fighting an unfair situation, a disadvantage, 
because of these verbal statements or specific actions.
    This verbal intervention is blatantly a problem and goes 
against our trade laws. My question is this: Japan, Korea, 
China, all deserve to have their currency policies officially 
and publicly criticized. Both over the last 5 years, when Japan 
was massively intervening, and now, when China maintains a peg. 
Japan continues to make explicit comments with the intention of 
manipulating their currency, and Korea follows the same path.
    If the current technical requirements of the 1988 Act do 
not meet your specifications to report on these issues, tell us 
what you need. And this is a follow up. I know my colleague 
asked the same thing, but tell us what you need in order to 
publish a report and to get tough, and also, what are your 
thoughts about Minister Tanagaki's comments? I mean, my 
experience is that people are very polite with us and will nod 
and smile, and they do not take us seriously for a minute.
    When the European Union took us to court and won and caused 
us to have to change our tax laws, international tax laws or 
threatened tariffs, they won; they proposed tariffs; we changed 
our law. What is wrong with this picture? We are the only 
country that does not step up in a global economy and fight for 
our own.
    Mr. Secretary, this is of great concern and frustration to 
me.
    Secretary Snow. Senator, thank you very much for those good 
comments. Our policy on this is really very clear, and because 
of the efforts of Under Secretary Adams, myself, and others, 
those policies are reflected in statements of the G-7 and the 
IMF policies, the G-20 policies, and the policy is very clear. 
Currency values should be set in open, competitive markets. 
That is what the G-7 communique says. That is the IMF policy.
    We now have the IMF much more engaged in macroeconomic 
surveillance looking at the question of currencies and the role 
of currencies in the adjustment policy. Japan has not, to our 
knowledge, directly intervened in their currency since March 
2004.
    Senator Stabenow. Mr. Secretary, if I might just intervene, 
what about the comments that are being made? Are they of 
concern to you?
    Secretary Snow. I think the best policy is to minimize 
comments on currencies.
    Senator Stabenow. So what we hear is we have a lot of 
pieces of paper, we have a lot of statements, and we are going 
to go back to our businesses and say here, and by the way, as 
you are struggling and maybe closing up shop, you will feel 
really good about reading this statement. Good luck.
    Where do we get the action on this for people? Where do we 
actually do what other countries do, threaten tariffs, level 
the playing field, see how fast things change if they think we 
are serious? If I were them, I would not think we were serious.
    Secretary Snow. We are engaged, as I think you know, 
Senator, through the USTR in trying to create a level playing 
field with all our trading partners. And the fact of the matter 
is the United States is more open than most of our trading 
partners. We want to make sure trade is a two-way street. We 
believe in free trade, but it has to be a two-way street. It 
has to be based on rules. It has to be mutually advantageous.
    And we have pressed China, we have pressed Japan. Your 
former colleague in the Congress, Rob Portman, has been very 
forceful on trade openings with these countries.
    But on the currency issue, let me just be as clear as I 
can: We oppose any beggar thy neighbor policies. We do not 
engage in those policies, and nobody should engage in those 
policies. The currency values should be set in open, 
competitive markets, and beggar thy neighbor policies are the 
wrong way to go. I think the IMF, which does have supervisory 
authority, oversight authority on currencies, shares that view 
and will become even more vigorous in the future, much more 
vigorous in the future in seeing that countries adhere to good 
currency policy.
    Senator Stabenow. Thank you, Mr. Chairman. I would just say 
time is running out for American businesses and American 
workers, and it is time for us to act.
    Chairman Shelby. Senator Allard.
    Senator Allard. Thank you, Mr. Chairman.
    Mr. Secretary, you have heard consistent concerns here 
about how important it is that we have a free floating exchange 
rate, and you indicated in the last hearing, I think, that we 
need a freely floating exchange rate, and has there been any 
kind of a timeline established where we can have some guidance 
over time as to whether, how serious they are, whether it is 
something that has just been discussed and laid out on the 
table in an informal way or whether we have a more formal type 
of timeline in place?
    Secretary Snow. There is not, to my knowledge, a formal 
timeline, but our conversations with the Chinese indicate they 
are serious about continuing to move forward, and while they 
did not say March 15, 2010, they are clearly suggesting that 
they are going to accelerate this case and move forward with 
it.
    Senator Allard. What leverage do we have to get them to do 
more?
    Secretary Snow. Yes, Senator, we have to do, I think, what 
we have been doing, quiet diplomacy. I do not think they 
respond well to threats. I do think this quiet diplomacy is 
having some benefits. They are now much more forthcoming in 
what they are saying. We need to see action. But at least the 
words--words always have to proceed action. I mean, they are at 
least conceptually on board with this now, which is more than 
we can say 2 years ago.
    They have taken some steps, too small. They have indicated 
that they are going to keep pressing this forward. Market 
analysts, J.P. Morgan and others, foresee a fairly significant 
move in the currency if current trends are continued over the 
next 12 months or so.
    It is in their own interests, Senator. I think what is 
going to drive this forward is it is in China's own interest to 
allow their currency to better reflect fundamentals, because 
after all, they are importing an awful lot of stuff from 
Southeast Asia that they then handle and export to the world, 
including oil that is an important part of their economy.
    If their currency is being held down, then, they are paying 
more for those things. Their citizens' standard of living is 
being suppressed as a result, and they are creating the wrong 
price signals for their economy, leading them to put more 
emphasis on the export sector and less on the domestic sector, 
all of which is going to slow their long-term growth rates and 
hurt their standard of living.
    So ultimately, I think it is their recognition that having 
a fluctuating exchange rate based on market values is in their 
interest.
    Senator Allard. Let me ask you about energy. Now, you 
indicated that our trade deficits here, a third of that is 
because of the high cost of energy, oil in particular.
    Secretary Snow. Something on that order, right.
    Senator Allard. China, one of the reasons that there is a 
higher cost on the world market for oil, I have been told, is 
because China is buying up a lot of fuel. They are buying a lot 
of barrels of oil. If they are buying that like we are, if they 
are out there competing and paying the same price, why do we 
not see a comparable reflection in their trade deficits as to 
what we are seeing in our country?
    Secretary Snow. Because their export sector is so much 
larger as a fraction of their total economic activity I think 
basically is the answer.
    Senator Allard. Now, I think my colleagues are trying to 
suggest somehow or the other that you have trade reprisals of 
some kind or another. My initial reaction to that is that that 
would hurt us probably more than it would them. I would like to 
hear your reaction to that.
    Secretary Snow. Well, I think the United States would be 
damaged very much by trade reprisals, because trade reprisals 
by us would make much of what we import more expensive. That is 
like a tax on American consumers. So trade reprisals really 
need to be looked at as something that hurt American consumers.
    Senator Allard. And certain sectors might be more adversely 
impacted than others, and one of the sectors that I have seen 
discussed that might be adversely impacted would be the 
agricultural sector. Would you agree with that?
    Secretary Snow. I think so, absolutely.
    Senator Allard. And we do so much exporting of agricultural 
products, I know that from my State's viewpoint, I do not know 
that that would be very good.
    Secretary Snow. Senator, well, I agree with those 
sentiments. The United States benefits from an open global 
trading system, and we are the leader of the policies that have 
led to an open global trading system. If we turn our back on 
that, I think we can expect others to, and that will hurt 
Colorado agricultural interests and others.
    Senator Allard. And those States that have high urban 
populations, like New York, Illinois, and California, maybe--
well, California has pretty good sized agriculture, but maybe 
they may not be as concerned about that, but I for one would be 
concerned.
    Secretary Snow. But I think every State has important 
export interests, and policies that we initiate to restrain 
trade and limit trade would invite reprisals from other 
countries that would be damaging, I think, generally.
    Senator Allard. Mr. Chairman, I see my time has expired.
    Chairman Shelby. Thank you.
    Senator Schumer.
    Senator Schumer. Thank you, Mr. Secretary, and I know it is 
not so easy for you to be here.
    I guess my first question is just to get your view a little 
bit more on predicting not the yuan but the Congress. You have 
dealt with many of the Senators on this issue, and you know we 
have legislation. I know you do not agree with that 
legislation, nor does the Administration. Let me just say, the 
goal of our legislation is the same as your goal: It is to get 
China to move. And we are caught in a position--where they say, 
do not talk tough, and then they will do something.
    Well, the Administration has done a very good job of not 
talking tough for quite a while, and they have not done much, 
particularly here. But I have an initial question just to get 
your view. As you know, with our legislation, we are now 
scheduled to call it up by September 30. Obviously, if there is 
real movement, which Senator Graham and I hope there will be, 
and the Chinese indicated there would be when we went there 
just in terms of their own internal needs, but let us say there 
is no real movement in the currency between now and the end of 
September.
    What do you think the chances are that our bill will pass?
    Secretary Snow. Well, Senator, I think failure of China to 
be responsive heightens the prospect, clearly, of your 
legislation and any legislation that takes action against 
China.
    Senator Schumer. Well, last time, we got 67 votes. Do you 
think we get more or less this time?
    Secretary Snow. Senator, you would be much better at 
reading that.
    Senator Schumer. Well, what do you think? You have talked 
to a lot of Senators.
    Secretary Snow. When you were out, I commented to Senator 
Bennett, based on the comments from the Members from both 
sides, I do not think the Committee would have written the 
report the way we did. He seemed to nod in agreement with that.
    Now, look, there is real concern not only in the Senate but 
also in the House and across the country about this issue of 
China and China trade. And so, I think there is broad-based 
support for something, and China can reduce that pressure by 
moving, by taking action. That is why I urge them to do so.
    Senator Schumer. Thank you, but let me just get a yes or no 
answer. Do you think it is likely our legislation--the 
Administration agrees that it is likely our legislation would 
pass if there is no movement, and it were brought to a vote. 
Remember: We got 67 votes last time, majorities in both 
parties. It is an easy question to answer. I just want to get 
your answer to it.
    Secretary Snow. Well, again, I will preface my answer by 
saying I am not the Senate whip for either side, and I have not 
consulted with people who would help advise me on this. But the 
sentiment is pretty strong to do something against China, and I 
think the handwriting is on the wall: China needs to act.
    Senator Schumer. Right.
    Secretary Snow. And if they do not act, it heightens the 
odds of legislation.
    Senator Schumer. Next question.
    Secretary Snow. Yes.
    Senator Schumer. And thank you. I will take that as a yes 
in very diplomatic terms.
    [Laughter.]
    Senator Schumer. In any case, the frustration some of us 
have with this currency report is that you have been saying for 
the last few currency reports that if China did nothing by the 
next report, you would probably have to find them guilty of 
manipulation. Yet every time, you come right up to the line 
without crossing it.
    And so, the question is, if there is no real movement in 
the currency between now and the next report, what will the 
Treasury do? How long will it take--you saw the charts that I 
showed and the charts that Senator Sarbanes showed--how long 
will it take for you to find them a manipulator? You keep 
saying--basically, we are not finding them a manipulator, and 
there is a wink involved. We know they are manipulating, but we 
are more likely to get them to act if we do not find them a 
manipulator.
    Well, when will the time come? Assume that the value of the 
yuan does not cross the 8 mark. Is there any way--I mean, are 
you not likely to find them a manipulator next time?
    Secretary Snow. Senator, I do not want to forecast what we 
might do, but obviously, if there is not movement in the 
currency, and these imbalances continue, that heightens the 
odds very much of making the case that the statute calls for, 
yes.
    Senator Schumer. Right, but in all due respect, and I mean 
this sincerely in all due respect, you have said that in the 
past, and there has not been much movement, and you do not do 
it, and that is why many of us feel we have to take action in 
Congress, because the Administration is not taking obviously 
needed action.
    Secretary Snow. Senator, let me say on that that the report 
covers the last half of 2005.
    Senator Schumer. Right.
    Secretary Snow. And in the last half of 2005, China did 
take action to move to the delinking and did the small step and 
then said they would do more and have done something.
    Senator Schumer. Okay; I got it. So if China took less 
movement in the first half of 2006 than they took in the last 
half of 2005, which would be less than about 3 percent, you 
would be more likely to find them a manipulator.
    Secretary Snow. That would be troubling, yes.
    Senator Schumer. And you would be more likely to find them 
a manipulator.
    Secretary Snow. Yes.
    Senator Schumer. Let the record show he nodded his head 
yes.
    [Laughter.]
    We have to take what we can get, Mr. Secretary.
    Secretary Snow. We would expect more movement than that.
    Senator Schumer. My time has expired.
    Yes, thank you.
    Chairman Shelby. Senator Carper.
    Senator Carper. Was that more movement of your head or----
    [Laughter.]
    Secretary Snow. No, more movement in the yuan.
    Senator Carper. Well, we will look forward to whatever 
movement we can get.
    I think you have probably been asked enough about the 
Chinese currency at least for a few minutes. Let me turn to 
another one, another hot topic that cooled off a little bit, 
but it is still one I wanted to question you about. And the 
issue is the Dubai Ports World, and they promised to divest 
themselves of their investments in American ports today when 
purchased Peninsular and Oriental Steam Navigation Company. And 
I would appreciate if you would share with us the status of 
this divestiture, and when do you expect it might be completed?
    Secretary Snow. Yes; Senator, the company has committed to 
a complete divestiture, and within, I think they said 6 months 
of like 2 months ago. So within the next few months, we would 
expect to see the complete divestiture.
    Senator Carper. Any idea how it is progressing?
    Secretary Snow. I will have to get back to you on that. 
People at Treasury are monitoring it, but I have not talked to 
them on that.
    Senator Carper. Let me ask two short follow up questions 
and ask you to answer them on the record if you would.
    Secretary Snow. Sure.
    Senator Carper. And one of those is what course of action 
can the Administration take to enforce Dubai Ports World's 
promise to divest itself of U.S. port operations if it is not 
acted on? You suggested it will be, but if it is not acted on, 
what action is available to the Administration to enforce the 
promise? And second, if Dubai Ports World does not stay true to 
its promise to divest, what are the implications for security 
assurances that they gave CFIUS before receiving approval for 
the acquisition in the first place? Those are my two follow-up 
questions. You are welcome to respond to them now or----
    Secretary Snow. Yes; I will give you a full answer for the 
record, but when I went over that at the time, I satisfied 
myself we have very ample authority here which creates the 
incentives for them to live up to their promises with the 
ability to break up any subsequent transaction if they do not.
    Senator Carper. Second subject I would like to address, and 
I do not know that it has been raised here, but I mentioned in 
my opening statement, Mr. Secretary, the issue of long-term 
availability and affordable of terrorism risk insurance, and I 
think there is a Presidential Working Group that has been 
formed on this, and as I recall, they have an obligation to 
come back to us by sometime later this year; I believe it is 
September 30 with their report.
    The deadline is now about, oh, gosh, 4 months away, and I 
just want to make sure that the study is examining the right 
issues and is looking at those issues in a comprehensive way. I 
along with a number of my colleagues here strongly believe that 
a long-term terrorism risk insurance mechanism must be in place 
and that the President's Working Group study process plays an 
important role in getting us where we need to be, and I was 
just hoping you could give us an update on the progress or lack 
thereof.
    Secretary Snow. Yes.
    Senator Carper. Has the Working Group taken a look at what 
kinds of public-private partnerships would be viable in the 
future?
    Secretary Snow. They are, Senator. As I recall, that TRIA 
report is due to you on September 30. I think we are on track 
to get it to you on that date, the report to this Committee. 
Treasury is in the lead in gathering data, reviewing comments, 
going out for comments to the whole sector of the industry, the 
buyers, the providers of the insurance products, the 
construction industry, builders, and so on, and I will commit 
to you that we will have a thorough and well-considered report 
to you by the statutory deadline of September 30. It is being 
worked hard. It is an important issue; I agree with you.
    Senator Carper. Well, last question: I mentioned in my 
opening statement my continued concern, I think the concern of 
a lot of us about the still large trade deficits. And do you 
recall what our trade deficit was last year just roughly?
    Secretary Snow. Yes; 6 percent or so of GDP.
    Senator Carper. Just put a number--$700 billion?
    Secretary Snow. Yes, $700 billion roughly.
    Senator Carper. $750 billion; okay. Any idea what it was 
the year before that, just roughly?
    Secretary Snow. Well, roughly, a percentage or so lower. It 
has been rising, as the charts that Senator Bennett put up 
showed.
    Senator Carper. I missed those charts. What are you 
forecasting for this year in terms of dollars, not percentage 
but dollars?
    Secretary Snow. We do not do a forecast of that, but the 
trend line is to have it be somewhat higher.
    Senator Carper. All right; all right; thanks very much.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Mr. Secretary, in last year's report, at the time of its 
release, you stated if current trends continue without 
substantial alteration, China's policies will likely meet the 
technical requirements of the statute for designation. As this 
year's report indicates, over the past year, China has allowed 
the yuan to appreciate by only 3.4 percent, an extremely small 
amount, considering most experts believe the currency is 
undervalued by 20 to 40 percent; you have a range of estimates.
    At the hearing on the report last year, I specifically 
asked you what your thoughts would be about a movement of this 
magnitude, 3 to 5 percent. I quoted an analysis from Galaxy 
Securities that said, ``the making of decisions in China is 
mostly consensus based, so that might lead to a compromise of a 
3 to 5 percent rise in the renminbi's value.'' You responded: 
``this adjustment has to be material and has to be significant, 
has to be something that will significantly close the gap 
between the current value and a more appropriate value.''
    Do you think this small appreciation of the yuan over the 
past year has been material and has significantly closed the 
gap between the current value and an appropriate value?
    Secretary Snow. It has closed it somewhat, but it is 
insufficient, and we are clearly, as I have said over and over 
again, unhappy with the failure to see more rapid movement.
    Senator Sarbanes. Why do we not cite China under the 
statute?
    Secretary Snow. Senator, because of the intent portion of 
the statute.
    Senator Sarbanes. Where do you find that?
    Secretary Snow. If you look at the statute, I think it is 
in the first or second line, which says that the test is--let 
me read it to you--it is the (b), bilateral negotiations. The 
Secretary of the Treasury shall analyze on an annual basis the 
exchange rates with foreign countries in consultation with 
IMF--and this is the relevant language--and consider whether 
countries manipulate the rate of exchange between their 
currency and the United States for the purposes--this is the 
intent side--for the purposes of preventing effective balance 
of payments adjustments or gaining unfair competitive advantage 
in international trade.
    Senator Sarbanes. Well, let us parse that language. Do you 
think the Chinese are manipulating the rate of exchange between 
their currency and the United States dollar?
    Secretary Snow. The Chinese have stated that they are going 
to move to a fluctuating exchange rate, which is the contrary 
of manipulation.
    Senator Sarbanes. Well, they have not done that, have they?
    Secretary Snow. Well, but the intent is to move there. They 
have said that. Actions speak louder than words, but they have 
taken some actions.
    Senator Sarbanes. You seem to find the intent requirement 
here, which I have some doubts about, but in any event, with 
respect to the for purposes of, that is where you find the 
intent, right?
    Secretary Snow. Yes.
    Senator Sarbanes. For what purpose are they doing it.
    Secretary Snow. Yes, right.
    Senator Sarbanes. But they are manipulating.
    Secretary Snow. Well, they are not allowing their currency 
to move in accordance with market forces. The term manipulation 
has an emotive content to it, the use of which might make it 
more difficult to get the country in question to do what you 
want them to do.
    Senator Sarbanes. Where is that bill, that financial--no, 
the Financial Times.
    Secretary Snow. Which is why some have suggested that 
language like misalignment might be better language.
    Senator Sarbanes. There is an article in the Financial 
Times today by a columnist, which I take it is tongue in cheek, 
and he heads it, said this address to the Chinese Communist 
Party Central Committee by Zhao Xiaochuan, Governor of the 
Central Bank, has come into the Financial Times' hands. Have 
you seen this?
    Secretary Snow. No, I have not, Senator.
    Senator Sarbanes. All right.
    Secretary Snow. Well, I know the purported author.
    [Laughter.]
    Senator Sarbanes. All right; yes, purported I think is 
right.
    But listen to this. This is how some people see what you 
are doing. This is the start of the address: Comrades, by 
ducking out of branding China a currency manipulator, the U.S. 
Treasury has shown yet again that America is a paper tiger. It 
has not even accused us of the lesser crime of misalignment, 
not that that would mean much; just more of the interminable 
talks we have already held with Washington for years.
    Now, why do you not cite China? Are you concerned about 
having to enter into negotiations with China if you cite them, 
since the statute would require you to take action to initiate 
negotiations on an expedited basis?
    Secretary Snow. No, Senator, because we are already engaged 
in precisely those sorts of negotiations. Intense negotiations 
and intense discussions go on regularly between the Treasury 
Department and our counterparts in China.
    Senator Sarbanes. Would you then invoke the provision that 
you are not required to initiate negotiations in cases where 
such negotiations would have a serious detrimental impact on 
vital or national security interests?
    Secretary Snow. No.
    Senator Sarbanes. Well, I do not quite understand where you 
are going. I mean, you keep telling us that you are working; 
you are going to get these adjustments. We do not get them. The 
magnitude of what is happening dwarfs anything that we have 
experienced in the past. China has been cited in the past, has 
it not?
    Secretary Snow. They were, Senator, back at a time when 
they had what was known as a dual currency system, an 
administered system for international and a separate one for 
domestic, which on its face clearly involved manipulation. That 
is what you cited to me earlier.
    Senator Sarbanes. Yes, that is exactly what I cited to you 
earlier. But the magnitude of these figures, they just dwarf 
the situation. What is the largest current account balance we 
have had with a country before this one with China?
    Secretary Snow. I think Japan back in the 1970's and 
1980's.
    Senator Sarbanes. How much was that?
    Secretary Snow. It, I think, was as large or larger than 
this in real terms. I forget the precise--maybe somebody has 
that; yes, about 1.5 percent of GDP.
    Senator Sarbanes. One and a half ? We are at 9.1 now on the 
trade surplus.
    Secretary Snow. No, not with China, though.
    Senator Sarbanes. No, no, no.
    Secretary Snow. You asked me on one country.
    Senator Sarbanes. Yes, yes.
    Secretary Snow. On one country, and China is large, but I 
think in the past----
    Senator Sarbanes. It was not anywhere near comparable with 
the situation now.
    Secretary Snow. Well, I think Japan rivaled or was larger 
in real terms than China is today, but I will get you that 
precisely, because earlier, you said----
    Senator Sarbanes. Well, you said 1.5 percent of GDP. China 
is at 9.1 percent.
    Secretary Snow. No, no, China is not. That 8 percent number 
is the total number, of which China is a couple hundred 
billion.
    Senator Sarbanes. Well, when I looked at the figures, the 
trade flows with China were running about 5-to-1.
    Secretary Snow. Right.
    Senator Sarbanes. So what we send to them is about 16 
percent, 1/6, of what they send to us.
    Secretary Snow. Right, right.
    Senator Sarbanes. We have never had a disproportion of that 
magnitude. Even with Japan at the time we were concerned, it 
was running about 2-to-1, maybe.
    Secretary Snow. Right.
    Senator Sarbanes. Yes.
    Secretary Snow. Right.
    Senator Sarbanes. So this is a terribly unbalanced 
relationship. Now, you come in, you say we want to play by the 
rules of free trade, but one of the rules of free trade, as I 
understand it is the adjustments in the currencies that address 
the question of these severe trade imbalances and work those 
out over a period of time.
    That is not happening here. It is not happening. Now, every 
year, you come here and tell us well we have been talking with 
them and so forth and so on, and we do not see any substantial 
movement. You, yourself today have, I think, in effect, 
conceded that the adjustment has not been material. It has not 
been significant. What are we going to do about that?
    Secretary Snow. Senator, within the month, the President of 
China was here and laid out----
    Senator Sarbanes. And got a free pass, I think.
    Secretary Snow. --and laid out a set of commitments to 
address this problem. He said we do not intend and expect not 
to have this large surplus with the United States. We are 
taking policy actions to bring that surplus down. We are 
committed to continuing reform of the currency to move to 
flexibility. We are committed to developing our domestic 
sector. We are committed to reducing emphasis on the export 
sector.
    Now, those are words, but that set of policies articulated 
by the president of the country reflecting the discussion of 
the State Council and incorporated in the 5-Year Plan, if acted 
on--I do not think they put these 5-Year Plans together just 
for academic purposes. This is the 5-Year Plan to guide the 
economy. That plan reflects an intent to deal with the thing 
that is on your mind, the Chairman's mind, and my mind, and 
that is these large imbalances.
    Senator Sarbanes. Thank you, Mr. Chairman.
    Chairman Shelby. Mr. Secretary, I have a number of 
questions that I will submit for the record. I know that you 
have a big trip that you have got to keep moving on.
    I have a few observations, though. I have known you a long 
time. I know you are an economist. You have a Ph.D. in 
economics by training. You know a lot about the theory of 
economics, but you also know a lot about the world, because you 
were the CEO of one of our large companies.
    But something is wrong here. And I think what is wrong is 
the Administration is not looking and finding what everybody 
else in the world has found long ago, has seen. To say that 
China is not manipulating its currency defies all logic, all 
common sense, all evidence.
    You can just look at the chart that was used earlier. Look 
at, again, how the other foreign currencies have appreciated. 
Since April 1, 2006, the British pound has appreciated against 
the dollar 8.3 percent; the euro, 5.1; the Korean won, 3.5; the 
Japanese yen, 6.4; the Australian dollar, 6.3; the Canadian 
dollar, 5.1, and, as you have shown earlier, the Chinese yuan, 
0.2.
    So something is wrong. And none of us are interested in 
restraint of trade. We are interested in our consumers getting 
the best deal they can get, but at what expense? What is 
happening here? We are losing a lot of our manufacturing jobs. 
Our current account is way out of kilter. Our savings rate is--
and that is not your fault; I am not blaming you for this--our 
savings rate is so low in this country that foreign governments 
basically are financing our deficit and everything. You know 
all this as an economist. You know this as Secretary of the 
Treasury.
    But I still believe it defies all common sense, all 
evidence, to not say, as the previous Bush Administration 
found, I believe twice, that the Chinese were manipulating 
their currency, and this Administration, an Administration I 
support, but not in this instance, because I think they are 
totally wrong. Now, we know theoretically that the Chinese 
could grow, you know, the economy grows. We export more. They 
export less, or maybe their currency floats in a different way. 
But that has not happened. And I do not think that is going to 
happen.
    I think the Chinese are too smart to let that really 
happen. But at whose expense? Ultimately, it is going to be the 
American worker and the American people who are going to pay 
this price, and this debt is going to be paid. And it is a 
debt, as you well know.
    Thank you for your appearance, and thank you for your 
service.
    Secretary Snow. Thank you, Mr. Chairman.
    Chairman Shelby. The hearing is adjourned.
    Secretary Snow. Thank you, Senator Sarbanes.
    [Whereupon, at 11:28 a.m., the hearing was adjourned.]
    [Prepared statement supplied for the record follow:]







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