China currency bill set to clear US Senate

 Published: 10/11/2011 8:43:00 AM GMT
Original Cached

Defying Chinese anger and White House warnings, the US Senate moved Tuesday to approve legislation to punish China for alleged currency manipulation widely blamed here for costing American jobs.

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."

The Democratic-controlled Senate was due to approve the measure after 5:30 pm (2130 GMT), shifting the spotlight to the Republican-led House of Representatives, where Speaker John Boehner has condemned the "dangerous" bill.

"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.

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.

"We cannot stand by and watch any longer as our factories close down and entire communities undergo total devastation," said Democratic Senator Sherrod Brown, the bill's lead author.

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.

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 central parity rate -- which anchors how much the currency can fluctuate -- at its strongest level against the dollar in more than a year.

Beijing typically allows the yuan to strengthen against the greenback when it comes under fire from major trading partners over its controversial exchange rate policy.

Beijing has let the yuan strengthen more than seven percent against the dollar since pledging in 2010 to allow the currency to trade more freely against the dollar in a bid to battle high inflation.

The legislation 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.


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