Rep. Levin: Fighting for Prosperity
The currency wars are heating up.
Competitive currency devaluation is driving commodities like the price of gold to dizzying new highs. In one corner, you have the "gang green" greenback which made a 15-year low against the yen of 82.11 Thursday and in the other corner you have the yuan, which the Chinese perpetually promise to allow to appreciate but somehow never really get around to it. European Central Bank President Jean-Claude Trichet says economic fundamentals should be reflected in currency levels.
But reality is not a part of this currency game. Treasury Secretary Timothy Geithner was dead on when he said a "dangerous dynamic" is being created with countries that are all trying to keep their currencies values down.
We've heard lots of tough talk about the Yuan in the last week and you can bet you'll hear more of it during the International Monetary Fund meeting this weekend. But you have to wonder if there is any bite behind the bark.
Last week in the House Ways and Means Committee, the Currency Reform for Fair Trade Act (also known as the China Currency Bill) was passed. The legislation empowers the Commerce Department to impose tariffs on China if its yuan doesn't accelerate in value. I spoke with Ways and Means Chairman Sander Levin (D-Mich) on his expectations coming out of the IMF meeting and if we'll hear more rhetoric rather than action.
SL: Its clear countries at last, are facing up to this situation. China's dramatically undervalued exchange rate has given them a substantial advantage and this can not continue. Finally countries and the IMF are facing up to what is a dangerous dynamic and it has surely hurt us.
LL: Strauss-Kahn is warning the global currency wars could pose "a real threat" to the
economic recovery. How worried are you?
SL: Last year we had a trade deficit well over 200 billion dollars. The yuan has had a tremendous impact on us. It has to stop so now people are finally deciding that talk doesn't work.We need to take action
LL: What kind of measures do you think need to be done to put pressure on China to speed up their process in accelerating the value of the Yuan?
SL: Measures like we passed last week in House. We are putting our actions behind our word.We are showing China at last someone has done something concrete. The relationship of one being a producer and the other being a consumer can not continue.
LL: But what about the world? If you were in the IMF meeting this weekend, what would you suggest to the economic leaders in how they should handle China?
SL: I think its important for the IMF to stand up to the plate. In its original language, the IMF was suppose to tackle this type of issue and it never has. Now it clearly must. There has to be some kind of global structure to handle this global problem.
LL: Do you have a forecast of where you would like to see RMB exchange? Is it say, 6.5%?
SL: The answer I think is one that has been given in currency discussions. We want to see flexibility in the yuan and the steady implementation of increases. I don't think anybody can set an absolute requirement because we what we need is what hasn't happened and that's to make the promise of flexibility real, not rhetorical.
LL: What do you say to those who fear because China is a large debt holder of the United States it would be hard for us to put pressure on China to revalue their currency?
SL: I don't think so because China itself has so much at stake for us to repay our debt. It can not continue to essentially be an export platform and have us essentially being a consumption recipient. That imbalance must stop. It can't happen overnight, but it has to happen over a reasonable amount of time. Its in China's interest that this change happens. It has to be driven home though.
They have had this advantage for so long that I think its hard for them to realize they have to move away from it. This is a major imbalance that needs to be corrected. And its about time the United States has stood up. The President said to the Chinese through an aid the Chinese should act and if not, we have other means. What the House did last week in passing that bill was essentially a take on one of the "other means". China needs us to bounce back but its also true that we need to tackle the deficit issue.
LL: What is Congress doing to send a message to China that the United States is serious in decreasing the deficit and curbing spending?
SL: I think we have begun to take those steps. We Democrats, have passed what's called stachatory PAYGO that requires we pay for things (except for certain areas that are exempted). Ironically, the Republican Party has refused to follow that.
We've also insisted as we extend our tax cuts, if they go beyond our statutory PAYGO we pay for them. The President has talked about a freeze. We have the commission which as you know that now is empowered, to make recommendations. We'll see if they do. I think the Chinese should understand this Administration is serious and most of us in Congress are serious about cutting the deficit and curbing spending and they should not use that as an excuse. The status quo is unacceptable, unsustainable and the President has made it more clear than any President in recent times.
LL: When you look at the Bush Tax Cuts will there be a middle ground found between Republicans and Democrats?
SL: I think the best middle ground is extending the tax cuts for the Middle Class. That should be our focus. I think the people want it and the Republicans who want to use the 60 vote requirement to vote on this I think are mistaken.
LL: Let's turn to jobs. It is very hard for US manufacturers to compete with the Chinese because of labor costs let alone currency wars. How much of an impact has the yuan had on U.S. jobs?
SL: It has had a big impact. I spent last week in various industrial communities. Manufacturing is beginning to bounce back but companies tell me they feel they can't compete if the field is rigged against them.
This was true in the auto industry and the government step up to the plate and now it is true in the new technologies.
We are already seeing states vie to become a center for new technology. There are estimates that 500,000 jobs have been affected by this currency manipulation. As you know, there are other estimates that are well over a million jobs. Its common sense when the Chinese can make a product that is cheaper to produce and sell versus us that they will produce more and we will produce less.
Now the time has come for the United States to rise to the occasion. There are new energy technologies coming and we need to seize on it. We need to have this country be the vanguard of producing new technologies such as solar, wind and cell battery technology.
We can not allow China to produce it all and ship it to us. I was at a place in Mid-Michigan where they make solar panels. The facility is three to four football fields long and the manager told me that if something doesn't change, and our government doesn't have a strategy. In five years, every single solar panel installed in the US will come from China. That's simply unacceptable. This is what's at stake here. And to simply say that we can't act because China owns our debt. They have a stake in there being prosperity not only in China. We have to stand up for our prosperity.
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."