US Senate passes China currency bill

President Barack Obama last week
declined to back the legislation
© AFP/File

WASHINGTON (AFP) – Defying Chinese anger and White House warnings, the US Senate on Tuesday passed legislation to punish Beijing for alleged currency manipulation widely blamed here for costing American jobs.

Lawmakers voted 63-35 to approve the measure, which faced a gloomy future in the Republican-led House of Representatives amid warnings from leaders there that it could spark a trade war between the two economic giants.

“We are in trade war. But today we’re fighting back,” said Democratic Senator Sherrod Brown, one of the bill’s chief champions, celebrating an end to “the unilateral disarmament approach we’ve taken for the past decade.”

The proposal, powered by a tide of US voter frustration at a sour economy and high unemployment ahead of November 2012 elections, envisions retaliatory duties on Chinese exports if the value of the yuan is unfairly “misaligned.”

Republican House Speaker John Boehner has signalled that he will not bring the legislation to a vote, calling it “dangerous” to economic relations between the world’s number-one and number-three economies.

“You could start a trade war. And a trade war, given the economic uncertainty here and all around the world — it’s just very dangerous, and we should not be engaged in this,” Boehner said recently.

President Barack Obama last week declined to back the legislation and worried it could violate World Trade Organization (WTO) rules even as he accused China of “gaming the trade system” in a way that hurts the US economy.

Appearing on Bloomerg TV, US Treasury Secretary Timothy Geithner reiterated Obama’s concerns about breaking international trade rules but, asked whether senators had fired the first shot in a trade war, replied: “They did not.”

Few in Washington dispute the charge that China keeps the yuan unfairly low against the dollar, giving its goods as much as a 30 percent edge over similar US products, widening the American trade deficit and costing jobs here.

But the measure’s opponents warn that it risks worsening ties with China, and say a rise in the yuan would merely boost manufacturing and jobs in countries such as Vietnam or Malaysia — not in the United States.

They also contend that, if successful, the bill will increase the cost of commodities or consumer goods from China, hurting rather than helping US businesses and families.

The legislation’s backers, an unusual coalition of Democrats and Republicans, have said it’s time for Washington to take on Beijing, and predict a boost in the yuan will make Chinese workers wealthier and more likely to buy US goods, thus creating jobs and narrowing the trade gap.

They also say that current US law and multinational dispute mechanisms have failed to curb what they call Beijing’s unfair practices, which also include favoring Chinese producers for government contracts and tolerating rampant intellectual piracy.

China’s government had repeatedly condemned the proposal as it advanced in the Congress over the past several weeks, accusing US lawmakers of scapegoating Beijing for their own incompetence and warning it could trigger a trade war.

“This vote showed we will not be bullied by China when it is clear they are in the wrong,” Republican Senator Lindsey Graham said, adding: “We ignored the threats and do not apologize for taking this action.”

“I want a good trading relationship with China,” he said. “But the current Chinese policy on currency is clearly unfair and designed to benefit them at our expense.”

Republican House leaders have pointed out that Obama’s Treasury Department has refrained from labeling China a currency cheat and said they have no plans to bring the legislation up for a vote, effectively killing it.

But House aides say it could return to life if the issue somehow became a core dispute as Obama faces off with his as-yet-undetermined Republican foe ahead of next year’s elections.

The bill would empower US businesses and, in some cases, labor unions to trigger a US government investigation into alleged currency manipulation and seek retaliatory duties on the offending country’s exports.

It also aims to make it harder for the US Treasury to stop short of labeling China a currency manipulator and to restrict the White House’s ability to waive the resulting sanctions.

Ahead of the vote, China’s central bank set the yuan at its strongest level against the dollar in more than a year.

The issue has split the top two Republican White House contenders, with Texas Governor Rick Perry opposing it and former Massachusetts governor Mitt Romney saying he would confront China on his first day in office.