a veteran of this room is director of the peterson institute for international economics another frequent visitor clyde prestowitz president of the economic strategy institute also want to thank our witnesses for being here today in the one nine hundred seventy s china injected itself with economics now in two thousand and ten china appears afflicted by a menacing strain of reform that is either constraining a global economic recovery or worse capable of creating a new economic pandemic while china's emergence as an economic powerhouse has rightly grabbed our attention however the trends aren't new and there are some predictable similarities between china's economy now and japan's in the one nine hundred eighty s it's critical that china address the serious flaws in its economic structure but we should remember that we've seen this before maybe perhaps not on this scale this hearing is about china's currency policy  global imbalances like the i m f has i can stipulate that china's currency is undervalued plain and simple i can also agree with g twenty leaders that the world has teeth and balances that must be corrected but let's not sight of the fact that are fundamental problems with china's economy and let's not pretend that china's intervention in the currency markets by itself is the root cause of our ten percent unemployment or of china's ten percent annual g d p growth we'll hear today from some pretty bright economists on the problems of china's economy and i look forward to hearing what they have to say my view going in is that china's deliberate and dangerous wealth transfer from everyday households to inefficient export platform factories is standing in the way of the domestic consumption that chinese that the chinese and the rest of the world believe the chinese and the rest of the world so desperately desperately need china must introduce global best practices into its banking sector mature its financial markets better protect intellectual property rights and open more comprehensively to foreign direct investment china also should open its markets much more fully to all goods and services particularly those coming from the united states an increase in the value of the r and b will facilitate some of these measures for others the much sought currency appreciation will be a happy though perhaps unintended offshoot of the broader reform all of these measures will help china move toward its capital account which should be the ultimate goal for all of us because none of us can know the true extent of r n b undervaluation until the currency flows in my view however when it comes to china focusing on the currency valuation  issue is to the exclusion of the others is more likely to lead to a collective frustration and any improvement in the health of the critical u s chinese economic relationship but that said while we shouldn't obsess over the value of the r and b it would be should restart languishing bilateral investment treaty negotiations with china and prompt it to make progress on the currency and broader issues as part of the process i also believe the administration should devote time and resources toward attempting to establish a robust multilateral process either in the g twenty i m f or elsewhere so that other countries particularly some of china's neighbors in asia can bring new points of pressure to bear i would hope that china would commit to this multilateral process and participate in good faith if china wants to be treated as a major international player it has to own up to the responsibilities of that status by a similar token at the united states wants to maintain its status as the international leader then we'd better make sure that whatever we do to address china's currency regime we do it without losing sight of our international commitments and the overarching value of the multilateral trading system i'm wary of panicked approaches who supporters concede are inconsistent with our obligations but then try to justify those in consistencies by casually asserting that the normally applicable rules just shouldn't apply so far focused on china and let me close by saying i fully admit the united states needs to get its own financial house in order to china would be accumulating hordes of us of currency reserves and u s treasuries if the united states stopped racking up debt at the current unsustainable pace thank you mr chairman i yield back the thank you very much and take over is its currency fundamentally misaligned yes in the absence of currency intervention by the chinese monetary authorities there in in b dollar exchange rate would be significantly different i believe and are we living through the end of what i've called with my colleague morris sure larrick chime erika's demise by which i mean that fusion between china's and america's economy that has been the driving force of global economic growth for the past decade how important has the chinese currency policy been to china's growth mr chairman members of the committee china's gross domestic product has increased by a factor of ten percent to twenty four percent and as you all well aware its share of the us current account deficit has also grown in the period of the past ten years when china's export led strategy was really crucial to its growth there was minimal appreciation of the chinese currency relative to the dollar say about fifteen percent between two thousand and five and two thousand and eight for the rest of the decade china pegged its currency firmly to the dollar why did it do this one because it made its exports more competitive in global markets too because it allowed it to accumulate reserves as a kind of insurance against crisis the chinese did not want to experience what much of the rest of asia experienced in one thousand nine hundred ninety eight and because the chinese authorities have considerable control over their own banking system this policy did not give rise to domestic inflation in the way that standard macro economic textbooks predict that it would this kind of policy isn't supposed to work accord to economists i have the advantage of not being an economist i'm an historian and so i can assure you that it does work as long as reserve accumulation is realized by the monetary authorities and does not translate into domestic inflation it's worth bearing in mind that there is a close link between china's currency policy and the massive financial crisis that we are still living through and have been since august of two thousand and seven not only did china's policies squeeze other manufacturing exports as crucially it had the effect of depressing long term interest rates in the united states by between one hundred two hundred basis points without that stimulus it's hard to believe the housing bubble in the us would have been as large as it was in recent years how does china compare with other countries that have pursued this kind of strategy in the past that's one of the central points i make in my written testimony and the answer is that compared with west germany and japan after world war two this is a very different story they had export led strategies but they did not accumulate reserves on this massive scale and nor did they resist pressure to appreciate their currencies between one hundred sixteen one hundred seventy eight deutsche mark increased by sixty percent the yen appreciated by around fifty find that on that measure china has made a competitive gain of the order of forty percent relative to its trading partners so that fifteen percent appreciation of the remember that we saw in the middle of this decade hasn't really counted that massive benefit that china gets from its productivity gains and its very low unit labor costs can this continue is a crucial question many people believe that it can the u s deficit is back with the first green shoots of recovery china's surplus never went away although it said it will disappear briefly this month the u s is still borrowing indeed borrowing on a much larger scale than ever before in peacetime the chinese still need americans to buy their goods there are those people who think this strange desex librium can somehow be resumed in the aftermath of the crisis i think this is wrong for two reasons one there is some limit to u s recovery as long as china and the other currencies that shadow china's currency policy over value the dollar secondly that is not a sign of dangerous overheating in china's economy it is in their interest also to do something about this before they have a bubble the consequences of which will not be confined to china but we need not only revaluation of the remember we also need a significant change in chinese policy in order to encourage domestic consumption and we urgently need fiscal reform in the united states to do away with the notion that this country can run trillion dollar deficits for the rest of time which is of course the current implication of policy i come in conclusion to what should be done yes i think the treasury should bran currency manipulator but no i do not think this is a good moment to threaten or impose retaliatory tariffs against china and here is why i think that i'm in a store in this is not two thousand and five when congress last threaten tyrus against china we are in the middle of something that very nearly became a great depression and we should remember how in the past in one thousand nine hundred thirty one congressional policy on protectionism deepened that depression and some historians would say made that depression there is a danger not only of a trade war or a tariff war there is also a danger of a currency war and we are already seeing other countries using the doc's methods to drive their fee at currencies down below the dollar not everybody in europe is shedding tears over the greek tragedy as it weakens the euro it benefits european manufacturers brazil too is trying to soften its currency thirdly and crucially i don't believe  the appreciation on its own will be of massive benefit to the united states i'm very skeptical about paul krugman claims that it would significantly reduce unemployment in this country the main beneficiaries of ending the not in fact be the united states but would be china's trade competitors in emerging markets who are the real losers they're the ones who've been losing market share when you look at the structure of u s imports in conclusion i think we also need to be very wary of the more aggressive indeed nations attitude of the chinese today not only with respect to google but also i believe across a broad range of issues from taiwan to tibet the chinese authorities are spoiling for a fight and the united states congress must be very very careful about giving it to them a best seller and economic policy in recent years and china has the title of currency wars by song being i believe we are on the verge maybe already in the middle of currency wars and we should be careful that the market reaction to a trade war or currency war between the united states and china does not exceed in its negative effects the benefits which i believe would be minimal of of almost a full committee in attendance active fred welcome thank you mr chairman to great pleasure to be back i want to make five or six quick analytical points and suggest a three part action program for the united states to deal with the problem first the chinese renminbi is undervalued by about twenty five percent on a trade weighted average basis at about forty percent against the dollar that's on the basis of at least a dozen studies done in my own institute and elsewhere it's well established if anything is a conservative number you can put that in your head i think and use it to the chinese authorities by about one billion dollars of dollars every day in the exchange market they buy dollars they sell their local currency that keeps the price of that local currency keeps it undervalued in the exchange markets to maintain an artificially strong competitive position it's very important to keep in mind that several of their neighboring asian countries hong kong singapore taiwan malaysia peg themselves de facto to the r and b and so it's not just china that's competitively undervalued it's a lot of asia and you add those others and almost doubles the ante in terms of global trade effect and impact on the united states third this competitive undervaluation of the chinese currency and its neighbors is a blatant form of protection it subsidizes all chinese exports by the amount of the undervaluation twenty five to forty percent equal to a tariff of twenty five to forty percent on all of those asian imports sharply discouraging purchase of other countries it would thus be incorrect i echo you mr chairman it would be incorrect to characterize as protectionist a policy response to the chinese actions by the s or other countries such actions is skillfully chosen and properly carried out should in fact be viewed as anti protectionist point for china's global current account surplus soared to almost four hundred billion dollars exceeded eleven percent of its g d p two years ago an unprecedented imbalance for the world's largest exporting country and second largest economy its surplus of course dropped sharply during the recession but the i m f has just forecast that the number is going up again and by two thousand and fourteen will exceed seven hundred billion dollars and actually be bigger than the u s global current account deficit so it's not a problem that's about to go away if anything it looks like getting bigger all the time since china's exchange rate policy violates all international norms that are relevant there is an article of the i m f that commits member countries to quote a voice manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain unfair competitive advantage there is another principle in the i m f that rules out protracted large scale intervention in one direction in the exchange market exactly what china's been doing for seven years and there's an article in the world trade organization that says quote contracting parties shall not by exchange action frustrate the intent of the provisions of this agreement china is violating all the international norms and rules point six the competitive undervaluation of the r and b and those neighboring asian currenc does have and here i differ with neil ferguson does have a very substantial impact on the united states we have studied this very carefully my institute as i said we estimate you need a average of twenty five to forty percent even to bring their global current account surplus down to three percent of their g d p which would be a hundred fifty two hundred billion dollars still pretty strong pretty high the impact the impact on the us global current account surplus global current account deficit would be to cut our deficit by somewhere between one hundred and one hundred fifty billion dollars per year that's a lot of money it's not a whole deficit which is now on the order of five hundred billion but it would take something like a quarter to a third off and if we use the number that the president the administration has been using six thousand jobs for every billion dollars of exports that correction in our trade imbalance due to chinese revaluation would save something like or create six hundred thousand to one point two million u s jobs i agree with neil that paul krugman is a little high but i think the numbers would be very substantial remember this is not a full employment economy the us has ten percent unemployment there's plenty of unutilized capacity to lower dollar in response to a higher r and b would not mean inflation pressure it would not mean crowding out it would in fact mean more u s jobs mainly high paying manufacturing jobs in fact i would suggest since the budget cost of this action is zero revaluation of the chinese and other asian  currencies are the most cost effective step that could now be taken to reduce unemployment in the united states it certainly would be the most important part of the president's national export initiative so i think the case for  increase in the r and b and the other asian currency is clear and overwhelming i would suggest a three part strategy to try to achieve it first agree with neil ferguson the treasury should absolutely designate china as a per se manipulator in its report on april fifteenth the fact that the united states has been unwilling to apply the law of the land and call a spade a spade for at least five years has undermined any s effort to get an effective multilateral approach to the to the problem i agree with you mr chairman the basic thrust has to be multilateral but the u s has no credibility seeking that unless it's willing to be honest itself follow the law of the land and designate china a manipulator so that would be step one but in that same breath i would take two major new multilateral initiative i would go to the i m f and seek agreement requires a simple majority of the weighted vote to dispatch the managing director to beijing on what is called an i m f parlance a special consultation or an ad hoc consultation to see chinese agreement to move the currency up if they don't do it then you can go to executive board for a vote the third step in the process is to go to the i go to the world trade organization the united states has the right to seek a dispute settlement panel to look at china's obligations under the w t o that i cited before and ask for it to be declared a violator under the w t o rules final point mr chairman as you suggest i've been before this committee many times i'm in fact been in this business for over forty years in my experience and here i differ a little bit with the historian in my experience no country that's run big trade surpluses and had an undervalued currency has ever been willing to correct itself without you get the initial revaluation of the european currency and the japanese yet jim baker went to the plaza agreement in one thousand nine hundred five on the basis of two bills passed by this house of representative that would have caused great pain to our trading partners had they not agreed to correct the currency imbalances that so i'm afraid it's going to get story pressure the chinese will never move in response to extort or pressure i would suggest they will never move without external pressure and if we do it skillfully and multilaterally and thoughtfully i think we can fashion an effective strategy violation of commitments to the i m f to the world trade organization and to the united states yes it's harmful harmful to many developing countries mexico being a high on the list but it's also harmful the united states fred has pointed out the estimates of increased unemployment in the u s as a result of china's easy for them to locate their new investments in china so this has an impact not only on employment but also on technology development and on  numbers come to pretty much the same conclusions i would just add that china's not alone japan pioneered this development model of export led growth fostered particularly by undervalued currency and there are a number of other countries that are currently participating are pursuing the same models nor is currency undervalued the only element and they are the model another very important aspect of subsidisation of investment so for example companies like intel that have recently invested in china have calculated that because of the tax rebates because of the capitol grounds and other financial investment in those months they're able to save as much as a billion dollars  over the life of a lifetime of an investment so the financial investments are twins with the currency undervaluation to create a powerful incentive to move investment technology and jobs out of the u as long as his no country that has been running a trade surplus has voluntarily agreed to take steps to reduce that unilateral typically response needs to be multilateral i agree in fact i would say in terms of the immediate question should china be labeled a currency manipulator i don't see how the president can avoid doing so everybody knows that china is manipulating its currency of the president for just that he looks weak and so i don't see how he can really avoid that but having said that then once he does that where do we go  obviously first steps are two of the i m f to the dog in pursuit of the persuading china to observe the agreements that it has already made in those  bodies but i think we have to be realistic and anticipate that those could be very difficult discussions and that they might not go anywhere or that they might not go anywhere very quickly i think it's also percent might be presented as flexibility on the part of china but he would have no real significance and terms of the distortion of the markets that we're talking  think we have to think not only about china but we have to think about the other countries that are involved in this restructuring let's say of globalization so a second  step here is the think about things that we can do that we should be doing ourselves mr camp talked about the steps that we need to take domestically to become more competitive i wholeheartedly agree with that i would add one very important point on the come back to this issue of financial investment incentives mr president if you do that quickly because i've been told we're going to have votes in about an hour  very much appreciate the opportunity to appear here today and i will follow your suggestion or offer just a brief summary of my extended testimony china's currency undervaluation is both real and problematic the conclusion of the run to be as an undervalued has been reached by a wide range of analysts including the i m f the clearest indicators that are bad accumulation of china's foreign exchange reserves now estimated at roughly two point four trillion dollars the most acute problems stemming from this policy appear in china itself for that reason the situation is vexing but not hopeless it is in china's own interest to move toward an appreciating currency china's undervalued exchange rate in mounting reserves post serious difficulties for controlling chinese money supply and in turn inflation analyst recently argued the chinese policy is cultivating a real estate bubble to compare with that of japan before its bust in the one nine hundred ninety s under its policy china has been extending large volumes of loans to the rest of the world for a relatively poor country that is rapidly getting richer such lending makes a little economic sense of course the primary concern of this committee in the congress is the effect of chinese practices on the united states whether or not chinese currency practices hurt the u s is a subject of vigorous debate among economists and apparently historians as well even if one is convinced of the harm we must be very clear on the likely costs and benefits of potential remedies in normal times there are strong arguments to china's exchange rate policies do not hurt the united states as you mentioned however recent arguments made by noble laureate paul krugman make a contrary assertion he links chinese policies to u s unemployment and that linkage relies on the argument that the united states is temporarily an abnormal times this he does not mean a steep recession which is obvious but a time when monetary policy has become completely ineffective a so called with quiddity trap it is during such a special situation that an increase in net chinese demand could stimulate the us economy presumably in a way that the fed is incapable of doing like ruben's reasoning this offers a relatively short window of time in which the chinese policy change could have any serious effect yet none of the actions that china might plausibly undertake are likely to do this a gradual currency appreciation of the sort china followed from two thousand and five to two thousand and eight would not be large enough and more sudden appreciation on the order of twenty to thirty percent the chinese economy so seriously that it would not increase its demand for global goods at least not in the short run so what determines whether china will act there are two major sources of legitimacy for the chinese regime economic performance and nationalism chinese reluctance to revalue the renminbi hinges on worries about economic performance specifically the potential demise of large numbers of low margin businesses in china's exports sector nationalism in turn is likely to mean that china would not react well to unilateral u s pressure in the interests of time i'd like to focus on just one major proposal to encourage change the idea of a unilateral tariffs on chinese goods compared to other proposals this would impose the most immediate economic pain on china but it would also maximize the likelihood of a strong nationalist backlash within china that would preclude chinese compliance with u s demands by blatantly violating u s commitments under the w t o a unilateral tariff would do lasting damage to the rules based multilateral economic system this could be disastrous for a us economy that is globally integrated nor should one expect as dr ferguson also said that the breakdown in cooperation relations will be limited to the narrow confines of trade and currency advocates of a tariff have set aside these long term consequences and argue that it could achieve u s short term goals whether or not china complies this is highly dubious such a bilateral measure can be readily circumvented by a reordering of world trade flows effectively reversing the shift in trade patterns that accompanied china's recent rise for many of the low cost goods that china produces its cheap competitors are not u s firms but those in other developing nation even if the united states were to enter lines of business from which china has been excluded such adjustment takes time thus there are a few likely short term benefits to offset the potentially staggering long term costs in contrast multilateral approaches would be n nor easy but would offer a better chance of eventual success united states could work through the deputy you know the i m f the g seven or the g twenty by avoiding the antagonisms of bilateral conflict a multilateral approach could make it politically easier for china to exceed to new rules this is not really a choice between short term benefits a long term cost it is hard to discern a feasible action that china might take that was significantly improved u s employment and output in the short run is even harder to imagine a had my getting and we have an hour perhaps an hour and a half so let me go right to mr wrangle and then and we'll go down the line chairman and let me say this panel at the end of my short questions i will be asking you what do you suggest that the congress of the united states would do  because no one here that doubts that china is a manipulator there's no one here that doubts that is that an economic impact on the united states of america is a anyone here that truly believes that the united states and the secretary treasurer on april fifteenth to declare china a manipulator do you think that they will be doing it do you believe that the united states really doing what is our obligation in terms of sending a message to the people's republic of  china i think you frame the question just right what can the congress do my answer is your first premise is that the administration has not followed the law the lamb and you in the congress have not really held their feet to the fire  under the trade act of one thousand the treasury is supposed to label manipulator but the congress supposed to monitor them very closely you are given the authority and i would say the responsibility to bring the secretary of treasury before you if he does not do what you think he should hold his feet to the fire and ask him why he has not carried out the law to land and put substantial pressure on him to do so 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 us is still facing high unemployment but we're now sufficiently out of the crisis so that an effort with the chinese i would not be viewed as a record to the world economy or even to the markets i think people understand and actually expect the united states to pursue an initiative of this type the fact that the treasury has never been willing to designate china has in my view totally undermined its ability to engineer a multilateral strategy i think you're quite right mr rango and chairman levin as well to be cautious for the reasons the o ferguson said 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 the anti protectionist so if between now and april fifteen 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 is the us is hurt by the chinese misalignment other countries are hurt worse this is a set up for a should be able to mobilize a coalition of not just the willing but almost everybody to join in the i m f and in the double to bring multilateral pressure to bear and if that happens the chinese cannot ignore or resist it as i want to bilateral u s they can as long if it becomes multilateral as it should and 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 the motilal approach that's a good place for a turn or you want to go ok so next mr hurd and why don't we do this let's try to do it in three minutes that way almost all of us will have a chance because then we're going to have a number of votes so if you an appreciation of the r and b would reduce trade deficit with china during the bush administration china allowed the r and b appreciate by about twenty percent is that correct yes  no yet china's bilateral trade deficit during that time increase from about two hundred two billion in two thousand and five to about two hundred sixty six billion in two thousand and eight given this record what do you think are the other factors that are impacting this trade imbalance and do you believe the exchange rate issue is the most pressing promotional issue between the united states and china will thank you for the question i think you are entirely correct to suggest that there are a number of factors that affect bilateral deficit one reason that economists frequently shy away from the whole obviously they're at the center of a lot of the political debate what we have seen in trade flows with asia is that while china share of u s imports has skyrocketed the share of asian countries including china in u s imports has held fairly constant over an extended period of time encompasses not only the overall trade balances which are what the concept for the focus on but also the shifting of trade flows within this has the implication that we cannot be guaranteed that a change in the in the exchange rate would necessarily lead to an improvement in the bilateral balance and as you suggest that's not what we've seen in recent experience on the other question that you posed what are the other what is the most important factor i would argue that it is not as i believe term eleven said in his remarks there are a whole range of chinese practices that they go into space falling consumption and determine the overall outcome of chinese policy i think it would be strongly in the u s interest to focus on for example chinese financial practices with directed credit for example which can directly disadvantage us competing firms and think some of these are less sensitive issues that where we might have greater results because it now becomes a bit of a charge so we have a number of issues here it's not just us is placing all our apples in one basket here on this r and b i mean there's a big associated problems that we have with china that we would do well to place our emphasis on as well not just r and b absolutely any means of fixing the one problem does not necessarily fix the entire hundred seventy seven changes and people are deeply involved in my area on this whole question of china so you've now recommend a doctor and i believe in above all things do no harm  the question that's going to come at me in a community meeting is going to be if we force the chinese to read to re evaluate the renminbi what happens to us and what happens to them because we know there's a real estate bubble in china we know there's a lot going on over there we know our own problems so tell me how i answer my constituents in economic terms well as i think that's fairly straightforward right now we're talking some several people of use the term we don't want to launch a trade war we're in a trade war in a sense as mr burgess them pointed out  china has taken on strongly protectionist measures those are distorting trade and distorting the global economy and causing damage to our economy to your constituents they're changing the value of the r and b is not going to solve all these problems it's one but it is a necessary may not be a sufficient condition but it is a necessary condition to achieve the kind of shift that we want and if it happens it will have the tendency to create more jobs and higher wages for your constituents to send the answer to your constituent one if they really that you it's going to improve the u s competitive position and we're going to sell more goods through the port of seattle to china that's straightforward and clear to if they let the currency strengthen in value it will help hold down inflation pressures in china that's one of the main reasons they should do it now they're worried about rising inflation they're taking domestic steps against a rise in the value of their currency would help very much naturellement and it would help head off property bubble so it's win win i agree with what several people said revaluation of their currency is very much in china's own interest particularly right now they are leading the world recovery they're worried about inflation coming back they can have a much more sustained expansion if they include currency they're walking a very fine line between cooling it down and causing a major crisis in their own financial system and we must be very careful that we don't have to say to your constituents oh we thought it would help us unemployment but we kind of overlooked the possibility that it would tip china into a serious slowdown or you might find yourself having to say to them we thought it would really help but we kind of overlooked the fact that the chinese would stop buying a billion dollars of u s denominat securities every day and our long term interest rates went up and so did your mortgage rates and we kind of thought it would help if the dollar weakens slightly but we didn't realize it would weaken by so much and bring bring back the specter of stagflation there are a lot of things that can go wrong in a global economy as complex as the one we have today you know back in the one nine hundred seventy s which fred bergsten was talking about earlier it was possible for the united states to say to the rest of the world as john connally famously did our currency your problem but right now the chinese are in a position to say that that is kind of what they are saying and the reason that they're not simply doing what we would like them to do is that they have good reason to be cautious about what could go wrong in their economy and if something goes wrong in china right now it's very bad news not only for the u gs critical that on this issue america congress especially wield a scalpel not a sledge hammer in addressing it to make sure the repercussions don't damage our consumers or our businesses i do think there are along with this issue consumers raising prices limiting their choices will be either figure or effective in reducing our trade deficit with china two points there because china imports so many of its components and inputs the symbols and sends out you know appreciating the arm be simply reduces the cost their inputs i think it offsets the impact on that final product also i wish i knew more about the products that the us in china exchange with each other i don't think there's a direct match up to to try to achieve the twenty five percent reduction that mr dr bergson talked about i would be interested from any of the does that help or hurt our ability long or short term to get china to live up to its commitment thank you i think it would seriously hurt our ability to china to live up to its commitments that china has to da been fairly responsive to the findings of the b t o dispute settlement panels and if we were to to demonstrate that one should simply not do that when when one feels one has strong concerns we'd be very unlikely to see more which one do you think stands a great chance of success well just to be clear i did not propose a twenty five percent duty i was trying to get a currency realignment of twenty five percent here and i carefully did not great want to go through the w t o rules you said there's a clear provision article fifteen of the w t o 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 multilateral eyes the issue and publicize name and shame the chinese causing the problem i think ought to be part of our strategy thank you w roots will deliver but in the g twenty there are many other countries represented that are losing out from china's policy the more unilateral u s action is the less effective it will be if the us acts in concert with other learned with china well the chalk japanese experience is one that the chinese are very anxious to avoid one of the arguments of the book at that i mentioned currency wars is that the united states used currency policy to push japan into recession and prevent japan's bid for economic parity the chinese have learnt the lesson that if they're not careful they'll be put in that position to work currency appreciation will ultimately  shift their economy into the situation japan's was in in the one nine hundred ninety s that is to have a lost decade or two decades i think that is one reason the chinese are so reluctant to be seen to move we have leverage over the west germans and we have leverage of the japanese that we don't have over the chinese after all we had troops on the former losers of world war two soil this is not the situation with respect to china and the chinese look at the japanese experience as one that they would very much like to avoid on what that means for our currency and how that's going to impact the future sustainability of our of our system and one and a half minutes if you could and then  the congressional budget that office says we could follow one in which current law stays it is it as it is and the debt to g d p ratio rises towards three hundred percent of g d p and one one in which you ladies and gentlemen behave in the way that you traditionally do in which case the debt g d p ratio rises above seven hundred percent that's not going to happen because that's an impossible number the united states is in a fiscally unsustainable position justifying this on the basis of on the public because it conceals the fact that there is a structural crisis of public finance this is of crucial importance to our discussion here because the chinese of acted as a support for us bond prices for some years now through the interventions the big question which we have to ask ourselves is are they going to stop doing that and would they be willing to take a hit on their large holdings of u s dollar denominated bonds in order to teach us a geopolitical lesson i believe this regime in beijing is well capable of doing that when it feels the time is right so i think congressman you're very right to raise this issue it's our fiscal improvidence that makes us vulnerable geopolitically as well as economically and we would be much better advised to address the unsustainable fiscal position than to worry with us fred ok your projections on on jobs from valley revaluation i'm curious so are you basically saying that one dollar drop in our current account deficit necessarily translates into an one increase in our exports and then you translate the export jobs how do you how is that a one for one replacement i'm not sure how that number adds up necessarily the linkage between if the current account deficit goes down a but by a buck it's going to necessarily translate in a dollar increase in exports well technically it's an increase in net exports and some of it would be on the import side although for various technical reasons most of the gain from currency realignments actually does come on the export side but since we think there's a roughly equivalent number of jobs and dollars on the import substituting side as the exploiting side it works out about the same in terms of your job calculation the number that the government is now using the secretary of commerce has put it out the president use that is quite a conservative number i think about six thousand jobs per billion dollars of exports that's an average across the whole economy but i think it's a fair one to use all right some people think so i'll be humanely brief mr chairman because you covered a couple of questions that i had to the panel plank you very much very lightning and very  informative there's an article the wall street journal is warning about china expecting their first trade deficit in six years or so why would you give us your interpretation of how that will affect the current issue under discussion here thank you if i microsoft first this will give the chinese a political advantage in their negotiations with us and they will point to this is evidence that there is no need for significant revaluation secondly i think they will probably introduce some minimal revaluation just to fall because all the third point which is really important is that it tells us how china operates as an engine of growth in the wake of its very successful stimulus program yes china has been growing very indeed despite the near great depression in the western world but it's very interesting to look at who have been the beneficiaries of china's increased imports because this is not a story of reduced exports and china's exports are at an all time high it's a story of massively increased imports unfortunately it's not the united states that has been increasing its exports to china it's been of asian countries that have been the main beneficiaries which incidentally gives china some real geopolitical leverage in that region it is now clearly the engine of growth in asia pacific and we are not i think the simple answer is the number is an aberrant it's because there were holidays in in china during the february period due to chinese new year and such there were a lot of days when there was not work being done more so in previous years because of the irregularities a calendar so i don't think it's to be taken seriously they will use it as dr ferguson said but i don't think we should be put off by that i mentioned in my testimony that the i m f has now done a five year projection of where chinese trade is likely to go and their projection is certainly not biased against the chinese is that the surplus is likely to again be rising from this year forward and out to two thousand and fourteen goes back to about eight percent of the chinese economy something like six hundred billion dollars and would by the i m f judgement exceed the whole global us current account deficit at that point so on that metric the chinese trade problem is getting worse not better well the point we we focus a lot on the deficit but  be a problem that the real issue here is distortion of trade let me give an example applied materials recently was in the newspapers major american company leader and production of high technology high capital intensive sunday conductor manufacturing equipment moving significant production to china now if if it's if you look at the thing in terms of comparative advantage the kind of products that apply material  products in which the united states has a comparative advantage therefore you would expect under normal market conditions we don't want those but applied materials is moving that production to china that would be a problem even if we had a trade surplus  question here that you mentioned in the early one nine hundred thirty steps of the congress at that time took to to take action on unemployment and and job do you see similar policies occurring now by the congress and and also do you see this this potential trade war or currency war with china is contributing more to increase joblessness as we move forward and i apologize that we're giving you all the time that i have as i know that's a long you could go on for twenty minutes on this but thank you i'll be more brief than that congressman i think there's a serious danger that we overlook the financial crisis interesting the in europe the famous credit and bank failure of one nine hundred thirty one i don't think we're entirely out of the woods in the sense that we could have another leg down in the near depression or great recession whether you look at the possibility of retaliatory tariffs which are implicit in the bill that is i believe before the senate or whether you look at the more serious problem of currency wars there is a danger that i'm called an aids policy action unilateral moves by countries not only the united states but also european countries could damage international financial confidence just as it is beginning to recover and that is my great concern about this discussion there's no question that china is a currency manipulator but one we should not go around blaming china for all the unemployment that we have seen increase in the last two or three years i think that would be a highly irresponsible and rather insincere way of handling this problem and two we must be aware of the law of unintended consequences talking about a trade war pushing the chinese and currency rob revaluation in this fragile global economy runs the risk in fact of killing off the recovery that we're just beginning to detect and setting off a chain of competitive devaluations in the world a few money  really i control the time i'm sorry for now not go well it's almost a question dr ferguson i couldn't share more his concern about currency wars and competitive undervaluation but here's the question what is the l the thirty's applied to today china is competitively undervalued and as i mentioned a number of asian countries have already emulated them that are undervalued as well so they won't lose competitive position against china other countries prickly emerging markets are tempted to do the same thing build a big war chest the reserves follow neo mercantilist policies so the question is what is the lesson of the thirty's is it to let china and the others who are now following the competitive devaluation policies that we rightly say made things much worse in the thirty's is it better to let that stand  to take action against it before it spreads even further and more and more countries join the parade and we look back thirty years later and say china began a competitive devaluation race the same way the americans  testimony to be brief let me just keep it to one question and preface it with a quick comment you only see this happening when someone's the been a big big kid on the block for ages all of us said some upstart comes around you don't pay much attention to him he looks too small team to keep up with you a little bit here and there but you could always somehow run him out to beat him up all of a sudden the little kid starts to grow up and start to catch up sometimes you get a little complacent and to some degree with our years and years of running deficits years of years of having opportunity borrow wherever we wanted years and years of having our industries feel that they were always number one we're still the most innovative place in the world sometimes you can't blame people for closing their eyes sitting on the couch watching t v a lot too much i think what's happening is the rest of the world is catching up in china has been a very good job of figuring out how to do this and they're a little more patient than most they've been around ten times more longer than we have as a developed society and they figure in the last twenty thirty years they've done a lot but that's just a blink of an eye for them and they're very patient willing to wait another forty fifty years before they overtake us if they think that's will take so i think all we're saying we're pontificating here we've got to get up start doing some exercise stretching and recognizing that the rest of the world is catching up to us but my question is this another part of the world that has i think developed a little bit of flab in the midsection is europe europeans very developed like us we are the first world portion of the globe give me a quick comment on how you think the europeans are ha handling china and how we can work with the europeans to make sure that we work off some of that midsection to keep up with the those upstart that are catching up to us well the good news i think the europeans are actually handle a china better than we are  particular if you look at germany germany has a trade surplus with china and until recently germany had the biggest was the biggest trading exporting country in the world  d while europe does have its problems and clearly the greek financial crisis is causing very serious concern about the euro and you have got a two speed europe currency and very high wages have been able to compete with china and i think that's something that we should take very seriously because it does indicate that there are other elements in this puzzle besides the  and they have to do with wage and price discipline they have to do with coordination between government labor and industry they have to do with investment incentives with real strategies to maintain for example in germany to maintain the engineering the medium and small sized high tech engineering companies germany has a real competitive this strategy and so do some of the other european countries and we is an eighth grade student watching president nixon land in beijing and how far we've come in those days the military military academy but i coming to a conclusion as i'm entering old age that sometimes relationships between two great powers can be kind of like a marriage of an old couple rarely does forcefulness by one spouse or the other tend to produce the desired result and question for dr levy that i'd like you to comment on and just use the balance of your time on this in your opening statement you mentioned about the quiet diplomacy that had been undertaken in the last administration and i think actually that was building upon what had happened in the prior administration so that was in a sense a bipartisan view of trying to maintain this integrity of the american economy and balancing each other's interests that we saw a revaluing of the the army by about twenty percent i'd like you just for the context of us here who don't live in your world if you could simply articulate maybe an example or two of other things that relate to the  of of that approach if we were to stop from an immediate response and maybe take a can or maybe even to generate your approach or a generational approach to this relationship thank you congressman as as you point out we did have some some movement and it did come from quite diplomacy and there is a long tradition in u s diplomacy that reaches across both parties of trying to bring china not only do this b into multilateral institutions and get china to agree in to take on burdens and responsibilities with the rules one of the things that i think i can and i could sort of helpfully comment upon is the dominance in fact i think the chinese had many many concerns and that was the subject of a lot of this diplomacy so it was not simply that the u s was saying please please please appreciate your currency it was dealing with questions for example if you have others who are working we're used to a fixed exchange rate making contracts for delivery forward what do you do when you don't have forward exchange markets and it was these kind of things that our treasury has worked with the chinese try and say for your testimony dr bernstein you have outlined a very specific three or four step plan that you think we should take that involves vigorous congressional oversight action with hearings like we're taking today but as i understand it does not involve any legislative action passing any new laws by the congress is it your position that it would be a mistake for congress to take any legislative action in this area i would prefer to try the approach i've outline first because i think congress can be a lot more activist and a lot more aggressive a lot more effective holding the administration's feet to the fire than you have if it turns out that doesn't work then you may have to legislate to try to get that kind of forceful action taken by the executive branch it is it is sec was doing at the executive has not carried out the law when the manipulation is so obvious like you do short answers do are other witnesses also agree that now is not the time for congressional legislative action i agree with that but i would say one other thing and that in addition to ling china as a currency manipulator  and and and pressuring treasury to to do that i think also you in the congress have special oversight over trade and you have a special relationship with the office of the us trade representative and as we've pointed out china is not only in violation of obligations in the i m f but also possibly in the b t o as well and so it might be worthwhile for the congress to also have a chat with the trade rep about what action the trade rep might take in the b t o dr levy no legislation now yes i think there's something and dr ferguson i believe that your position also that is correct let me ask you look trying to look at it from the effects on the chinese economy which you have commented on dr ferguson particularly what would be the likely effect within china of say even a ten or revaluation without significant changes to for example welfare policy designed to increase chinese consumption would have a strongly negative effect on chinese g d p growth and i took this presentation to be a have with the chinese and the debt we are likely to have in the future this is extremely hard to be sure about some data suggest the chinese significantly reduce their purchases of u s treasuries already in the sense that direct purchases of way done two thousand and nine direct purchases with something like five percent of new treasury issuance but they may be making purchases indirectly and dr buxton and i've corresponded in that question it's very hard to know in other words quite how they will respond but i want to revert to my earlier point they have a lever that they can turn it would cost them no question but they know that if they can gain some political advantage from turning that lever it's that and i don't think we have an equivalent lever co on intellectual property rights real quick it's clear that china has tolerated and unacceptably high rate of piracy across technologies u s copyright industries estimate that eighty five to ninety five percent of their members cooperated work sold in china were pirated despite repeated promises by the chinese to step up in force and that this problem persists and the dollar losses keep mounting to nearly nine billion a year if exchange rate has the effect of lowering these costs the cost of products isn't it true that intensified by china stuff and that intellectual property and making these products at issue will the exchange rates solve all i'm sorry will the exchange rate solve the competitiveness concerns for america's most innovative industries and the last question shouldn't the administration press the chinese on these issues just as hard as the currency issue the exchange rate while have as big an impact on some of the leading edge industries as on the on the more standard manufacturers or standard service providers and so you're quite right i think that the protection of intellectual property and let me revert to my earlier point the power of financial incentives tax holidays capital important again let me underline live feeling that the u s government at the national level should put together some program to respond to the very aggressive financial incentive those coming from not only china for many other parts of asia and even europe as well thank you dr ferguson you have comment on that no it will have no effect but as i say exchange rate revaluation live no effect on the problem of intellectual chairman thank you for holding this very very important hearing a lot of thinker witnesses for your testimony here today but i think we can all agree the u s china relationship going forth in the twenty first century is one of the most important for global economic stability and and  for bilateral relations and yet i think there's a message to the chinese authorities and the chinese people here today is that we recognize that china today is not the china fifteen years ago or ten or even five years ago and as they  send as a true economic global power and as a member of the w t that global power comes with global responsibility and yet the patience is weighing on our side when you get more reports like the briefing paper that recently came out about the job loss given the current chinese currency situation and senators like senators graham and schumer citing this report this becomes more and more politically toxic in our country and that's why i think the message is we've got to continue to work with them to figure out how they can assume their true global responsibilities that they have right now dr levy in dr ferguson let me ask you and if we have time the others can respond but it's not unprecedented for china to take some re evaluation in the currency from all five zero eight bit about a twenty percent increase along what made it possible land given the conditions then that make it hard for them to do something comparable today dr le i think that they did recognize the difficulties that came with the bill was really an unwise turn to policy and i think there was constructed u s diplomacy to help address some of the concerns that they had i think it got stopped when they became frightened during the financial crisis of what they faced the hope is that those pressures to change are still there and they have described this the stoppage as a  measure the ideally to work with them constructively to move to a more sensible path which would be an appreciation ferguson the key point is that the period of appreciation happened during the boom years from two thousand and five when they could allow a creeping appreciation against a basket of currencies a really minimal cost to the exports as remember as i tried to point out in my testimony they were making much big gains in terms of unit labor costs than the losses that they were suffering through this appreciation the second point i think is that and i think this is been mentioned before but let me say it again it shows you how little we gained from that kind of appreciation i mean the payoffs and terms of of the trade deficit nonexistent and that is why i think we must be careful not to pin too much faith on this particular policy you know a parallel was drawn up earlier by congressman davis to a marriage this is a kind of marriage but one of those marriages between one partner who does all the saving and the other partner who does all the spending and in my experience those marriages tense and rather unhappily and i think that's why this one's on the rocks two quick points if i may disagree with neil and what some others have said that the us got nothing out of the earlier chinese currency appreciation our current account deficit was cut in half between two thousand and seven two thousand not a lot of it was recession but part of it was improved competitive position the dollar income down in general and particularly so we did get something out of it and we can quantify that i agree with neal they did it in two thousand and five for couple of years because they were enjoying a booming economy that's why argue my statement now is the time they can resume in their economy is booming they began growth already in the first half of last year and have led the world recovery indeed they are worried about overheating they've been tightening reserve requirements they've been cutting back on lending they are worried about inflation this is a natural step in that context it would question is i know we've all talked about a combination of bilateral diplomacy as well as a multilateral approach one specific question if we're going to do this and all of you outlined the first step being labeling  so it would be perfectly legitimate to name them i think would be much in the u s economic interest to name them and get them to revalue because i say when you add them up they almost double the ante in terms of trade flows and potential i think it would also be politically good to group china with some others and not be singling out china de facto you'd be singling out what i would call a china block you wouldn't call it that de facto you would do it i don't i actually think you have to do the asian countries do have a problem of their exchange relationships among each other and here i would bring in japan they talk about coordinating their policies their monetary policy they haven't been able to do what they still view themselves as competitors more than cooperate but they really do in fact need to work out an answer to that collective goods problem korea for example that is exchange rate go up sharply a couple of years ago and looked around and nobody else was there  agree with with dr ferguson that we don't want to ignite a currency war with the chinese but at the same time how are the european union members and canada responding to china's position i mean the headlines are dominated even over the last few days of the array of issues but how will our european union members in canada react to it i can't speak for canada but the european  has the unintended consequences of of consequence of weakening the euro this is part of the currency war story you know list listen to those crocodile tears falling in germany about the dreadful greeks in fact german manufacturers are delight the greeks are screwing up because it's finally weakening the euro relative to the dollar and other currencies and so that's really the solution that they've been a dozen to come up with and the pound the pound is going to be an even weak currencies in the euro i would expect you'll economy their kind of contributing disproportionately to global growth as partly as a consequence of this policy and you know they make the same argument that we've heard here that even if were not fulfilling all their obligations under valuing their currency and so forth and i turned around and said no problem is not offered you and so the chinese example but the chinese have implicitly admitted that they have to change their strategy they have a sensually adopted a strategy rhetorical at least of changing the composition of their growth part of which would essentially be a big change in the exchange rate so i think they've accepted it implicitly they've stopped it because of the crisis the head of the central bank said recently well that was a temporary thing and will go back to the exchange rate move at some later point so it's a matter of timing and how fast they go about it one coun to us would be just be patient and they'll get to it the problem is a lot of crockery is broken in the meanwhile but i think they have implicitly accepted in the g twenty in the i m f everywhere the need to rebalance their growth strategy which has to very serious problem here not only contributing to the trade deficit with currency manipulation but this is a an even bigger problem in terms of how our goods have become less destroyed in this country and we think we're going to solve all these problems diplomatically i don't think that works two point four million american jobs have been lost to displaces china join the  w in two thousand and one and as a result of the growing trade deficit with china and in the state of new jersey we have lost in that period of time sixty eight thousand eight hundred jobs that is outlined very clearly in case which was reported which was referred to before in in my district the eighth congressional district alone we lost six thousand jobs lost or displaced those numbers are significant and when i go back and be interesting when i go back to the district i intend to talk to some business people about this who are very concerned that they cannot get their product into china and want to deal with exports i'm going to tell them well look we're going to deal with this diplomatically because we don't want to perhaps cause a situation that occurred in the 's and you know what happened then wink wink this is an absurdity how we also know that china exports five times as much to the united states as we export to china we have leverage over china to ensure equity in our trade relations and my question to you ferguson what can the u s do and what measures do you suggest to protect the nation from any possible retribution from china when i think the first thing is to be very careful about assuming that old the lost jobs were lost because this is competition and it would be an even bigger mistake to assume that they would all magically come back if china's currency were revalues these would be very misleading a i think an important issue that's been raised in a discussion this morning is what the best channel to go through might be and we've expressed skepticism about legislative action retaliatory tariffs for good reason you may dismiss the parallel with the one nine hundred thirty s as somehow  but i can assure you any further blows to global demand dealt by arrows of u s fiscal monetary or trade policy would harm your constituents even more severely than they've so far been harmed if you had a taking the two of you who came in after easter so let's go we may have twenty minutes it's hard to t itself with right now the difference is that the w t as a body quite differently constituted that is able to impose decisions on the biggest countries including the united states when it's violated its w t obligations w t is the most powerful of all the international economic institutions and that's why it's actually our best channel china's gain hugely from w t a membership as i think was pointed out by congressman pascrell buff puts it in a position of vulnerability if we pursued the letter of and that seems to me to be the best course of action to take is agree with that and one crucial point under the w t o rules they ask the i m f for a judgment as to whether a is substantially undervalue so i think the right advice would be provided but that's a key reason why the i m f technically has to be involved in the process but very briefly it's not just the currency issue that we should take for the w t o there are many many other issues where you could challenge china's compliance is there is it a condition precedent to move forward to name them as a manipulator in april not technically nor legally the u s has those rights in the b t o or i m f my point is and i've heard this there is a serious downside risk to taking a case to the deputy which is we do not have clear language at the detailed delineating exactly which conditions are accept or which are unacceptable the u s could lose either way if it loses 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 a precedent of panel overreach that we are counting on dispute settlement panels to essentially legislate and come up with through china would begin to or stop the purchasing of treasury bills what effect that would have in terms of our markets what the reaction would be i'd like to hear if you can give that before you answer that  scenario of the united states does not do that and if we take no further action i don't believe either one of us suggest we take further action terms with russia lee but at the middle you believe the u s should declare them manipulators  we still poised to pass lose millions more jobs i think the situation will get worse if we do nothing about it if china maintains the exchange rate where it is now but if the f forecasts is right surplus rises again in absolute terms gets to about double where it is now that simply means a bigger deficit for us and more job loss for us so the worst case in my analysis is if we do not label china we still have no credibility and try to line up a motor lateral coalition to take the preferred kinds of measures what i think if we don't label china a currency manipulat 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 most powerful argument your first question is a really important one i was at a conference in london last week at which a leading chinese economist said the following my recommendation is that china should buy no more u s treasuries but should not sell them all at once and when he said those words there was a stunned silence in the room that seems to me to indicate that there is a fundamental policy change on the way and it will put the pressure on the federal reserve to stop buying treasuries if china stops because otherwise there will be a significant run up maybe of two hundred basis points in ten year yields and that would really be devastating for the u time of depressed demand and very high levels of debt strong disagreement with that with all due respect first of all if they would stop buying treasuries like the guy said we could declare victory that's what we want we want them to let the exchange rate of the renminbi go up the way they keep it from going up if i buy dollars to buy treasuries that would be victory now what would be the effect on our monetary policy and our macro economy first of all since our deficit would come down wouldn't need to borrow as much foreign money we would still have a budget deficit maybe will put some healthy pressure on us to reduce our budget deficit but in the meanwhile other people would have to buy those treasury the fed itself would it ourselves we think maybe fifty basis points there'd be some effect on interest rates there's no free lunch in getting these imbalances out that's for sure chairman you know i was just thinking that in the community where i live out on the streets there's a saying that if you see a sock puppet and i guess if you translate that it would probably mean if you see opportunity exploit it or make use of it my question really is how much of what kind of impact do we see revaluation of china's currency helping to make up for the differential in label and production costs which are tyson american companies and international corporations to flock to china in pursuit especially of consumer items and how does the differential in consumption in china versus consumption  therefore there import more from us everybody else that's good for consumers in china so if they really want to shift the economy more to our consumption of the revaluation exchange rate is very helpful in terms of relative labor cost it also helps it's not going to solve the whole problem their labor costs will still be much lower than ours but remember their productivity is much lower than ours do and what counts is the relationship between the two if the r and b were to go up by my full forty percent that's like reducing the gap between productivity differentials by about forty percent it wouldn't solve the whole problem but it would help a lot in terms of u s competitive is both in the chinese market much of what we sell much of the dynamic you're talking about the movement of u s productive factories and investment abroad is not so much in response it's partly response to their currency but it's also very much as i said earlier in response to these very aggressive investment incentives and i think that's another issue that has to be addressed  in this context and i think it's something that can be done and then in the b t o as mr ferguson suggested very very brief remarks on this we would have to keep pressing them because they keep making productivity gains and we must realize it's a very important point this isn't a one time quick fix even if there was a forty percent revaluation it wouldn't be long before we'd find ourselves once again under pressure because the real gains are coming in the unit labor costs not from the currency manipulation  much under under our rules mr camp wants to thank you very much mr chairman we hear a lot about china's foreign currency reserves and dr levy could you help the committee understand the ramifications of holding those reserves and certainly the you know the impact on financial markets for example and some of argue they may have been the cause of the financial crisis and does this push down u s interest rates can they use them to subsidize manufacturing and are there any other countries that over or time have had either large foreign currency reserves or large trade surpluses and what was the impact so if you could just in light in the committee and in that area appreciate it  yes i'd be happy to there's a lot of i would hear there i'd say i do not believe that china's accumulation of foreign currency reserves were a principal cause of the financial crisis it does have the effect of increasing the pool of savings in the world and that does have the effect of driving down interest rates but i think for the us as a major borrowing nation in general seeing lower interest rates is a good thing if we meet misused the funds that's not a cent that's not really china's fault i think there are common misperceptions that the accumulation of reserves is sons are war chest for china to do whatever they pleased to as you suggest to subsidize domestic manufacturers one common in fact it's a very limited telephones in iraq argue that it is in no sense a measure of chinese success that it's a growing problem for the chinese were they to try to use these funds domestically the first step would be they would have to convert whether it's dollars euros yen they have to convert them into their currency and that would bid up their currency what they are faced with is as soon as that happens they face a very serious capital loss but they have a capital loss because of the do the change in the currency and if interest rates were to rise it's actually a major point of vulnerability for china where there are other points that i miss i mean that was generally and i have a few seconds left is there anybody else you'd care to comment just i would just add one thought i think the chinese fully understand that they're going to take big capital losses on their dollar holdings they have viewed this all along as an export subsidy which it traces to a job subsidy and they know that some point they have to pay the price is actually ironic and almost humorous the chinese complain about the international value of the dollar and the international role of the dollar but every day as i testified they are buying another one billion dollars worth of dollars from rising they are the ones who are probably the dollar to ever greater international role all of our complaining about it so i don't have too much sympathy for  i think the thoughtful people there know that they're going to take a loss they don't have to market to market incidentally it doesn't go into their budget it doesn't go into any accounting they'll never have to pay the piper for it but they know that it's part of their exports that we now still have a balance of payments by good big question you in a state like mine in north carolina where we produce pork and post manufacturing textiles and technology give me some understanding of where we're headed with all this stuff we've talked about it in the broader sense but through the international of the large corporate entities you know they move in stuff at that level i want to know what happens on main street with a guy and gal who's out there working every day who are trying to make a living in don't understand all this stuff well i did a quick calculation based on the data your stats a gave me on north carolina and if i understand it right your population is about three percent that of the country  if the average is pat out of my numbers are right then eliminating the chinese currency misalignment would create somewhere between eighteen and thirty thousand jobs in north carolina it actually might be a bit more than that because in agriculture and low productivity industries like textiles you actually get more jobs per billion so you'd probably be toward the upper end of that range so it would be significant in terms of job creation and trade oriented state like north carolina  more jobs have been lost in the united states by the bursting of the real estate bubble and the loss of jobs and housing and construction that have been lost to competition with china in the last three years far more and we must be aware of what would be a pyrrhic victory in dr buxton's terms if we got currency revaluation of the price of higher interest rates then it would be very bad news indeed for the people in the housing and construction sectors so badly affected and so very far from a sustainable agree that china is artificially holding down the value of its currency in order to boost its exports and make imports mark pence of there and it's clear that the favorable exchange rate policy hurts american firms in american workers and  estimates are that about one point five million jobs are lost currency manipulation and in fact in the state of california we've lost the greatest number of jobs due to unfair chinese trade policies and sadly my subsidy offers aggressive investment incentives in order to attract investment to attract technology flows manages limits restricts guides entrance into its own markets the other side of solve the whole question intel for example there's one product and which the united states has a classic comparative advantage it has to the intel's microprocessor they make eighty five percent of the world's computer microprocessors and that eighty percent of them in the united states so we have a comparative advantage intel has just announced a major factory in china now is the production cost of those microprocessor going to be less and china not really it's not labor intensive it's capital do you think that the same might also be true for labor and environmental laws countries that have much more lax laws to lure global companies locate there at the cost of of reasoning to its logical conclusion it's not really workers that end up benefiting or end up doing better or having increased opportunities over the long run you have difficulty is that the relationship between us and china and a number of other developing countries where we're playing is if we have deep integration but we don't have the rules of it and the as the oceans to facilit i think you have been able to to outline what the challenges are and to line alternatives to see them to help us evaluate them so i think mr camp you are joining in thinking this particularly if you want to yes i just want to thank the panel for their testimony with a very good hearing and i want to thank the chairman for holding the standard your we beat the bell thank you