I couldn't find video of the House Ways and Means hearing on China's exchange rate policy, but I did get my hands on a transcript. Here are some interesting tidbits:
What should the U.S. do about the China currency issue?
BERGSTEN:
You don't want to launch a trade war. But as I said, it's the Chinese who are being protectionist here.
If we can fashion a sensible strategy, be anti-protectionist. So between now and April 15th I hope you will be strongly urging the Treasury to designate the Chinese, and the other four countries I mentioned.
But also, simultaneously and based on the promise they're going to do that, to go to their allies, the Europeans, some of the other emerging markets, and many developing countries. We've all made the point that bad as the U.S. is hurt by the Chinese misalignment, other countries are hurt worse. This is setup for multilateral alignment. I mentioned the earlier cases, 1971, 1985. Then it was the U.S. versus the world. The U.S. had a big deficit, everybody had a surplus. We wanted everybody else to revalue. Now it's different. It should be the world against China.
...
We should be able to mobilize a coalition of not just the willing, but almost everybody, to join in the IMF and in the WTO to bring multilateral pressure to bear. And if that happens, the Chinese cannot ignore or resist it, as long as it's bilateral U.S., they can't.
As long -- if it becomes multilateral, as it should and can be, I believe that changes the whole game. But I do not believe we can launch that multilateral initiative unless we're willing to follow the law of the land, call a spade a spade, stand up ourselves. And then on that basis, go to the potential allies and mobilize themultilateral approach.
Will the U.S. label China a currency manipulator soon?
BERGSTEN:
I actually think there is a reasonable chance this time that the Treasury will designate China as a manipulator. The economic situation has changed. The U.S. is still facing high unemployment, but we're now sufficiently out of the crisis so that an effort with the Chinese I think would not be viewed as a wrecker to the world economy or even to the market. I think people understand and actually expect the United States to pursue an initiative of this type.
How will the U.S. look if it does not label China a currency manipulator:
PRESTOWITZ:
I would say in terms of the immediate questions, should China be labeled a currency manipulator? I don't see how the president can avoid doing so. Everybody knows that Chinais manipulating its currency. If the president fudges that, he looks weak, and -- and dishonest. And so I don't see how he can really avoid that.
FERGUSON:
Well, I think if we don't label China a currency manipulator, we will look like the wimps of the Western world. So it's our credibility that will really be the -- the biggest problem, and I think that's the -- the most powerful argument.
What are the implications of bringing a WTO complaint:
BERGSTEN:
We want to go through the WTO rules as you said. There is a clear provision -- Article 15 of the WTO that proscribes the kind of practices that China is now carrying out.
Would it be effective to take a case? Would we win the case? It's never been tried. We don't know. I'm not optimistic we would win the case in a legal sense. But using it to multilateralize the issue, and publicize, name and shame the Chinese causing the problem I think ought to be part of our strategy.
LEVY:
... There is a serious downside risk to taking a case to the WTO, which is we do not have clear language at the WTO delineating exactly which conditions are acceptable and which are unacceptable. The U.S. could lose either way.
If we lose the case, we'll never hear the end of it from China about how their practices have been justified. If we win the case, we will have established the precedent of panel overreach that we are counting on dispute settlement panels to essentially legislate and come up with rules.
The importance of keeping this issue multilateral rather than singling out China:
Rep. Boustany: ...
I think Dr. Bergsten, you mentioned in your -- your paper -- your testimony -- your written testimony Hong Kong, Taiwan, Singapore,Malaysia. Would that be a more prudential approach for Treasury rather than just simply labeling China? And I would throw that question out for discussion.
BERGSTEN: As I said, those other countries de facto track the Chinese currency . And they have also experienced huge increases in their reserves they manipulated. So it would be perfectly legitimate to name them. I think it would be much in the U.S. economic interest to name them, and get them to revalue. Because as I said when you add them up, they almost double the ante in terms of interms of trade flows and potential pay off.
I think it would also be politically good to group China with some others, and not be singling out China. De facto you would be singling out what I would call a China block. You wouldn't call it that. But de facto, you would do it. I don't actually think you have to do it, because if the Renminbi rises, the others will shadow it and go up along with it in practice.
What's the relative value of the IMF and the WTO in resolving the issue?
FERGUSON:
I don't think there's any harm in going to the IMF, but I don't think any much will come of this. The IMF is only able to exert leverage over countries that are in deficit and in crisis, and they're usually smallish countries, and there are plenty of those it has to concern itself with right now.
The difference is that the WTO is a body quite differently constituted that is able to impose decisions on the biggest countries, including the United States when it's violated its WTO obligations.The WTO is the most powerful of all the international economic institutions, and that's why it's actually our best channel.
The role of the trade deficit in all of this:
[Someone whose name was not picked up in the transcript]:
... if we had a trade surplus with China, this would still be a problem. The real issue here is a distortion of trade.
How did the last Chinese currency revaluation happen:
Rep. Kind:
... it's not unprecedented for China to takesome revaluation in their currency. From '05 to '08, they had about a 20 percent increase alone. What made it possible then, the conditions then, that make it hard for them to do something comparable today? ...
LEVY: I think that they did recognize the difficulties that came with the -- what was really an unwise currency policy. And I think there was constructive U.S. diplomacy to help address some of the concerns that they had.
Some general thoughts on U.S. - China relations:
FERGUSON:
I think we also need to be very wary of the more aggressive and the pugnacious attitude of the Chinese today. Not only with respect to Google, but also, I believe, across a broad range ofissues from Taiwan to Tibet. The Chinese authorities are spoiling fora fight and the United States Congress must be very, very careful about giving it to them.
