US-China Commission Report - Fatal System Error

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ADDITIONAL VIEWS OF COMMISSIONERS
PATRICK A. MULLOY AND PETER VIDENIEKS
We are pleased to sign the Commission’s unanimously adopted
2008 Report to the Congress. Members of the Commission, assisted
by an able staff, worked in a very collegial and bipartisan manner
to elucidate key aspects of the U.S.-China economic relationship
and its implications for our nation’s national security. It has been
a privilege to participate in the effort.
One facet of the relationship which we wish to highlight is China’s
policy of underpricing its currency both to gain advantages in
trade and attract foreign investment. Foreign-invested companies
presently account for the majority of China’s exports. The Chinese
government has offered economic incentives, including an underpriced
currency, to encourage foreign company participation in its
economy. In its very first Report to Congress issued over six years
ago in July 2002, this Commission stated that China’s underpriced
currency was an important contributing factor to our growing annual
trade deficit with that nation, which was then about $90 billion;
it is now three times that amount annually. In addition, the
Commission stated that China maintained its underpriced currency
by having its central bank make large official purchases of U.S.
dollars and noted further that China’s very large dollar reserves,
accumulated as part of its exchange rate strategy, could in the
future, if not stemmed, be used as an ‘‘economic weapon’’ against
the United States. The Commission stated that China’s policy of
‘‘currency manipulation,’’ which contravenes China’s International
Monetary Fund (IMF) treaty obligations, needed to be addressed.
In each of our Reports issued since 2002, the Commission has
pointed to the damage being done particularly to the manufacturing
and industrial base of our economy by the strategies of
China and other Asian nations that underprice their currencies
against the dollar. We noted that our government needed to rectify
this problem and that to persuade the Asian nations to take appropriate
steps, it was necessary to get China to act first. The U.S.
Treasury Department has a statutory charge from Congress in the
1988 Omnibus Trade Law to identify in annual reports to Congress
nations that manipulate their currencies to gain trade advantages.
Treasury further was charged by Congress to work with any countries
so named to stop the IMF illegal practice. The Treasury Department
has failed to carry out this Congressional mandate. In
September 2005 when the Treasury’s under secretary for International
Affairs publicly criticized the IMF for failing to police its
own charter provisions forbidding currency manipulation by China,
the IMF’s managing director retorted that the Treasury Department
had not named China a currency manipulator in its own reports
to the Congress. There was mutual finger-pointing.
While this shameful failure of responsibility by both the Treasury
and the IMF has gone on, many more thousands of U.S. manufacturing
jobs have been lost, and communities dependent on those
jobs were decimated. Our nation’s cumulative total bilateral trade
deficits with China since 2001 have exceeded $1 trillion. China is
now running a massive global current account surplus of over 10
percent of its gross domestic product. In order to maintain its