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China Targeted in Bill on Currency Manipulation

A bill that would give the U.S. government the power to impose economic sanctions on China and other countries found to be manipulating their currencies to gain trade advantages has won approval from a key House committee.

The Ways and Means Committee approved the legislation Friday and Democratic leaders said the measure would be taken up by the full House next week. Supporters say the bill would protect U.S. jobs against unfair trade competition at a time of high unemployment.

The measure was expected to win easy House passage, although trade analysts said it was unlikely to be taken up in the Senate this year. However, they said the proposal would send a clear message to China that it risks U.S. trade sanctions unless it moves faster to allow its currency to rise in value against the dollar.

The House action comes as the Obama administration has stepped up its pressure on China to make more progress on currency reform and other contentious trade issues. The White House said that President Barack Obama pushed Chinese Premier Wen Jiabao to move faster on currency revaluation during a two-hour meeting the two leaders held in New York on Thursday.

American manufacturers contend that China's currency is undervalued by as much as 40 percent against the dollar. That makes Chinese products cheaper and more competitive in the United States and American products more expensive in China.

China announced in June that it planned to introduce more flexibility in the value of its currency, an action that was timed to lessen pressure on China in advance of a Group of 20 major nations summit in Toronto.

But in the three months since that announcement, the yuan has risen less than 2 percent against the dollar, sparking unhappiness among U.S. manufacturers who blame the undervalued Chinese currency for the loss of millions of U.S. jobs.

The House bill would allow for the imposition of stiff sanctions on Chinese imports by expanding the definition of trade sanctions to include a government's undervaluation of its currency.

Currently, the Commerce Department does not consider currency manipulation under the definition of improper government subsidies for which it can impose the sanctions, known as countervailing duties.

The Ways and Means passage of the bill came after an original measure, which had gained more than 140 House co-sponsors, was amended by Committee Chairman Sander Levin in a way that he said would make it more likely to withstand a challenge before the World Trade Organization, the Geneva-based body that enforces global trade rules.

"By taking a stand today, this committee takes the lead in standing up for American workers and businesses and holding China accountable for the manipulation of its currency," Levin, D-Mich., said after the measure was approved on a voice vote.

Several Republican committee members expressed opposition because of concerns the legislation could spark retaliation by the Chinese against U.S. exports.

Treasury Secretary Timothy Geithner, in testimony before the House panel and the Senate Banking Committee last week, had said the administration was ready to work with Congress to find a more effective strategy for bringing pressure on China not only on the currency issue but on such topics as rampant copyright piracy of U.S. products and various barriers the Chinese have erected to U.S. goods.

Asked for the administration's position on the House bill, Treasury issued a statement saying, "We are carefully examining the proposals put forward by Congress, but we have not taken a position on the legislation."

Trade experts said they believed the administration viewed the House bill as a good way to bring increased pressure on China to move faster on its currency revaluation.

"I think the administration sees this legislation as a good way to keep the pot on boil. If the Chinese don't start appreciating the yuan faster, this proposal could very likely win passage in both the House and Senate next year," said Gary Hufbauer, a trade economist at the Peterson Institute for International Economics, a Washington think tank.

U.S. industry groups which have pushed for years for a crackdown on China's currency system praised the House vote.

"If China fails to rebalance its currency, this legislation provides U.S. manufacturers and U.S. workers the necessary tools to defend themselves against China's predatory practices," Cass Johnson, president of the National Council of Textile Organizations, said in a statement.