WASHINGTON—In his first testimony before Congress since becoming treasury secretary, Henry Paulson faced harsh criticism Wednesday from Republicans as well as Democrats over the Bush administration's failure to persuade China to devalue its currency.
Paulson, who became secretary last July, is now the administration's point man on the Chinese economy. He's also become a punching bag for Democrats, who've made China trade—and the fear of many American blue-collar workers that it's costing them their jobs—a centerpiece of their agenda.
Wednesday's Senate Banking Committee hearing illustrated that Democrats are getting support from Republican lawmakers distancing themselves from another White House policy, much as many of them are doing on the war in Iraq.
"If the roof is leaking, we'd better fix it. I think the roof is leaking in the imbalance of trade," said Sen. Richard Shelby, R-Ala., who chaired the committee until the Democrats took control of Congress in January.
Sounding strikingly like a Democrat, Shelby said China's widening trade gap with the United States raised "questions about whether world trade is being conducted on a level playing field." Later he added, "I don't want to build walls ... but we've got to do something."
Kentucky Republican Sen. Jim Bunning scolded Paulson about China.
"They'll talk to you until you're blue in the face, but we're not getting anything done," he said, raising his voice as his face grew red. "I'm tired of talking!"
Bunning accused China of ignoring Congress and hiding behind protection from the Bush administration.
"The people up here (on this panel) make the laws, not you," Bunning said, noting that top Chinese government officials refused to meet with visiting U.S. lawmakers on trade disputes. The Bush administration and China could face an unpleasant surprise if this doesn't change, he warned.
"You get a sense here of the bipartisanship" on this issue, said Sen. Christopher Dodd, D-Conn., the new chairman of the committee.
Critics charge that China's government-set exchange rate allows the country to undervalue its currency, making its products cheaper abroad and its labor cheaper for foreign companies that manufacture there.
"More than 3 million (U.S.) manufacturing jobs have been lost since 2001, the steepest and most prolonged loss since the Great Depression," Dodd said.
China has allowed the yuan to rise 6.5 percent against the dollar since July 2005, but critics maintain that it must rise by at least 20 percent. Some lawmakers want to slap a stiff tariff on all Chinese imports in retaliation, but that could set off a trade war that was debilitating to the global economy.
Even some ardent supporters of free trade called for a tougher approach.
"It is obvious that China is extremely reluctant to make the needed changes in its currency policy. It is equally obvious that U.S. efforts on the issue over the past three years ... have borne little fruit to date. A new U.S. policy is needed," said C. Fred Bergsten, the director of the Petersen Institute for International Economics, a research center that advocates free trade and global investment.
Paulson answered repeatedly that he too expected action from China.
"I don't know what was in my predecessors' minds, but I've been focused on results," Paulson said. He outlined how he created the Strategic Economic Dialogue, which involves top economic officials from both countries meeting twice annually to measure currency reform and other issues. "I'm not satisfied, and I know we need to get some results."
The former head of Wall Street powerhouse Goldman Sachs & Co., Paulson is well-known in the upper echelons of the Chinese government. He's made it a top priority to help prod Beijing toward a freer open-market economy. On Wednesday, he was unusually specific about what he thinks is best for the Chinese and U.S. economies.
Paulson said China should:
_Widen the band in which the yuan fluctuates, which would help the Chinese government and the private sector learn to operate with a fluctuating currency, as developed economies do.
_Develop a bond market that signals risks to investors.
_Set clear policy targets to avoid inflation and to provide confidence in the value of its currency.
Democrats warned that time is limited.
"The Congress isn't going to wait for us to get some vague (description) of how this is progressing," Dodd said. He warned that absent visible results "you are going to get blown by on this."
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(c) 2007, McClatchy-Tribune Information Services.
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