How the U.S. Congress Views China: The Senate's Rising Star on Chinese Trade and Finance Issues Sits Down for a Chat. A TIE Exclusive Interview
TIE: A lot of people are worried about China--they see inventory starting to stockpile, and they worry that by next year Chinese exporters will have begun heavy discounting. The United States already has a current account imbalance approaching 7 percent of GDP. Is there any concern in Congress that at some point, China will try to export its way out of its overcapacity problem?
Graham: China and the United States have negotiated a textile agreement that's a good start on better relations. China is overbuilt in many ways. It's overbuilt in office space capacity. Its banks have a bunch of loans outstanding that are probably no good. The Chinese economy is too dependent on exporting. There is not enough consumerism in China.
Here is what I'm suggesting we worry about. We need to worry about Chinese business practices. The economies of scale in China are never going to change. That country has a lot of bright people who can do many terrific things. I've tried to get the Chinese to buy into an international business model that will allow us to have productive relationships, and move away from this confrontational model. As long as China manipulates the value of its currency to create a discount against all other currencies, it will be seen by manufacturing competitors as unfair. Without a system for protecting intellectual property rights, China will lose a lot of business investment and we're going to have a ton of friction between the Congress and China. As long as China engages in rampant transshipment and piracy, we're going to have problems. When they want to, the Chinese have the ability control piracy. Chinese-made movies don't get pirated. But American-made videos and movies get pirated to death. The transshipment issue, where goods assembled in China are sent to other countries to get the benefit of a trade agreement China is not party to, would stop if the government intervened.
So my goal, working with Senator Charles Schumer (D-NY), is to tell the Chinese we want trade between our countries to be a win-win situation. When China signed up with the WTO, it was expected that they were signing on to a new way of doing business. But their business practices still follow the old way, which is the China-first model, which won't work.
TIE: There is a sense in the markets that you and Senator Schumer were moving at eighty miles an hour and now you've deliberately slowed down to say twenty miles an hour. Is it because Alan Greenspan, the U.S. Treasury Department, and others have tried to negotiate a solution before you guys in Congress get tough?
Graham: Great question. Our legislation came about after almost two years of trying to negotiate. We started with a Senate resolution that the Chinese were manipulating their currency hurting market values and hurting manufacturing--and they needed to change their system. We scheduled a vote last year, then put it off, thinking something would happen.
The legislation [the China Free Trade Act, cosponsored by Sens. Schumer and Graham] came about as a result of trying everything under the sun. We don't want tariffs. But we're not going to sit on the sidelines and watch China cheat us out of market share. The 67 votes we got to not table our amendment were a wake-up call to the Administration and hopefully to the Chinese. And our position is being reinforced by the European Union. Congress and the Senate aren't the only ones having problems with China's practices. It's almost every international business group.
We were encouraged when China revalued its currency. It was not much size-wise, but it was encouraging. I know the Chinese can't float their currency tomorrow, but as long as they are taking steps to follow international business norms with their currency and other business-related items, I can be patient because I know wholesale change is hard in an emerging economy. So we've slowed down for a purpose, to try to make this situation a win-win. …