TANNER: FOREIGN COUNTRIES
BUYING U.S. DEBT
Congressman says national security compromised,
U.S. jobs lost as result

U.S. Rep. John Tanner says foreign countries are buying shares of the United States’ rising federal debt, a "dangerous situation" that could compromise national security, harm the U.S. economy and take jobs from Tennessee workers.

The federal government will have accumulated a $374 billion deficit in the fiscal year that ended last month, not including additional spending in Iraq, according to estimates from the non-partisan Congressional Budget Office. The nation’s government owes almost $7 trillion, and roughly $1.38 trillion of that is held by other countries, according to the U.S. Treasury Department.

"We are increasingly turning to foreign investors to finance our federal budget and the war in Iraq," Tanner said. "To keep up with the unprecedented growth in federal expenditures, we have to borrow billions from other countries."

Mainland China and Hong Kong bought $177 billion of U.S. debt in the first seven months of 2003. Chinese holdings in the U.S. debt have more than doubled since 2001. Other countries holding major investments in the U.S. debt include Japan, the United Kingdom, Caribbean Banking Centers, Germany and Korea.

China’s stake in our nation’s finances is particularly significant because it is using its holdings to undervalue the American dollar and manipulate its own currency, the yuan. That helps the Chinese economy grow and takes jobs away from U.S. manufacturers, Tanner said.

"Economists tell us that China is undervaluing its currency by as much as 40 percent," he said. "Simply put, China can manufacture products that cost 40 percent less than when U.S. manufacturers make the same items. We have lost millions of manufacturing jobs in the United States -- many of them in Tennessee -- and this is certainly part of the reason."

Tanner co-sponsors a bill that requires the Treasury Department to study China’s currency manipulation and authorizes trade tariffs if necessary to ensure China is not harming the U.S. economy.

Officials in Beijing could also threaten to sell U.S. treasury securities, increasing U.S. interest rates and leading to recession at home, Tanner said.

"Some fear China could threaten to sell its holdings in the U.S. debt as a negotiation tool on issues where we disagree," Tanner said. "The Chinese have the power now to control the American dollar, and that could have global security implications too serious for us to even imagine.

A longtime proponent of balancing the federal budget, Tanner addressed his concerns over foreign holdings of the debt in an Oct. 18 guest column in The (Memphis) Commercial Appeal.

"The Republican borrowing program, unless it is quickly reversed, will devastate our economy and diminish our role in the world," Tanner wrote in the column. "We cannot be the world’s leading economic and military power if our government’s financing depends on money from foreign countries, many of which oppose our policies."

Tanner represents Tennessee’s 8^th Congressional District. He serves on the House Ways and Means Committee, which is scheduled to hold hearings Oct. 30 and 31 on economic relations with China and China’s role in the global economy.