Alexander Hamilton Institute
International Trade

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10 Questions for Charles Schumer

By Austin Ramzy
March 26, 2006

Senator Charles Schumer visited Beijing last week with two other Washington
lawmakers to push China to freely float its currency. He argues that it's
undervalued and is driving up the $200 billion U.S. trade deficit with China.

Schumer spoke with TIME's Austin Ramzy about why he's behind legislation that
would slap a 27.5% tariff on Chinese imports to the U.S., and why he's
encouraged by his meetings with mainland policymakers.

Why did you feel you needed to make this trip? Hasn't China got the message
about its currency by now?

I like to stay home, but I thought I had to do this and I'm glad I did. There's
nothing like seeing people face to face, so they understand exactly where we're
coming from. The Chinese-American relationship is a very important one and we
don't want to see it torn asunder in any way.

Is Beijing responding?

What I take away from this visit is that the Chinese realize their economy is
out of skew in terms of currency; that they have to encourage more domestic
consumption and discourage some of their wealth going to exports. So now the
question for both the American government and the Chinese government is not "if"
but "when." That's a major change.

Isn't threatening tariffs like holding a gun to the head of U.S. consumers and
saying to China, "reform, Or I'll shoot"?

Our bill is intended to get the leadership of both countries talking about this
issue and coming up with a solution that both countries can live with. Nothing
was happening until we introduced our bill. Now we're getting some change.
But why make Chinese goods more expensive for all Americans just to save a few
thousand U.S. manufacturing jobs?

It's not a few thousand, but that misses the point. If you want the American
people to buy into the concept of free trade, it's got to be free on both sides
of the Pacific. And by the way, every economist we've spoken to, both heads of
the Federal Reserve, prior and present, and now the Chinese government and the
American government, believe they should float their currency.

Is there a risk here of a trade war with China?

I don't think there's a risk. The greater risk is that if Americans feel free
trade is not fair, we will back off our free-trade position.

Fair trade is much more than a question of China's currency.

Oh yes, it goes way beyond that. Currency has become a metaphor, because it's
the one issue entirely under the Chinese government's control. They could try to
enforce intellectual-property rights, but there are individual people in China
who are stealing intellectual property without assistance from the government,
just as there are in America. But on currency, the government can show its good
will and its adherence to the principles of free trade.

Beijing says the problem isn't so much their currency as it is structural
problems in the U.S. economy.

We have to work on both. There's no question that even if the Chinese allow
their currency to float tomorrow we'd still have a balance-of-trade problem.
So what should the U.S. do?

Lots of things. We need to save more, both governmentally and as private
citizens. We can reduce our governmental deficit. We can institute policies that
encourage more people to save.

Your tariff bill had a lot of Senate support last year.

Yes. We could have demanded a vote right away, but we held off because we're
doing an elaborate minuet here, and trying to prod both sides to come to an
agreement. We feel we're closer than we have been before.

What would it take from the Chinese for you to shelve the bill?

We do not want to set a deadline, or prescribe a precise method [for currency
revaluation]. We just have to feel that they believe this is the right
course?this trip has helped convince us of that. And now the next important
step, and only other step, would be for them to lay out a plan by which the
currency would float after a reasonable period of time ... The jury is still out on that.



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