Lawmakers Take China Trade Into Their Own Hands

Republican and Democratic senators said Thursday that they are fed up with China's trade practices, singling out Beijing's currency manipulation, theft of intellectual property and bans on certain U.S. imports.

All this, the lawmakers said, fuels an explosive U.S. trade deficit with China (search).

In 1994, "our trade deficit with China was $18 billion. In 2004, $162 billion," Sen. Jim Bunning, R-Ky., said during a hearing of the Senate Finance Committee.

China fuels this deficit in part by subsidizing its currency — the renminbi — so it is cheaper than market rates would dictate.

"The undervalued RMB keeps China's exports cheap," said Sen. Max Baucus, D-Mont.

U.S. consumers benefit from cheap Chinese products, but American companies end up suffering because they cannot cut their prices enough to compete against Chinese goods that in some cases are nearly one-third cheaper.

One New York lawmaker named two home state casualties — Crucible Steel and Stickley Furniture.

"Both of them said they could compete against China and do well, even with China having lower wage costs and lower other costs. But they said, 'That 27-point percent advantage knocks us out of the box," said Sen. Charles Schumer, D-N.Y.

Treasury Secretary John Snow endorsed diplomatic pressure and enforcement of global trading rules in an attempt to reduce the imbalance. Those suggestions are not enough for Sen. John Kerry, D-Mass.

"I don't think it is working. Well, they are not working to our satisfaction," Kerry said.

Bunning also wasn't persuaded.

"China has ignored us and ignored the administration's trying to get them to shape up," he said.

Sen. Lindsey Graham (search), R-S.C., proposed slapping a tariff of 27.5 percent on all Chinese goods if China doesn't stop manipulating its currency. Sixty-seven senators voted for the measure.

"No more saber-rattling, we want results," he said.

But Federal Reserve Chairman Alan Greenspan warned tariffs against China could spark a trade war that could harm U.S. exporters and threaten the global economy.

"If that ever gets implemented, the consequences, in my judgment, are extraordinary and negative," Greenspan said.

Another potentially explosive issue, the unsolicited bid from a state-run Chinese oil company to buy Unocal for $18.5 billion. Lawmakers urged Snow to review the potential sale's effect on U.S. national security. Snow said a review is likely.

"It's a hypothetical at this point, though, because we don't have a transaction," he said.

Ever since Congress approved permanent free trade with China years ago, it has left trade issues to the White House. Those days now appear to be over.

One hidden truth about Chinese products sold in America — most are not manufactured there, but merely assembled there. They are sold globally by European, Japanese and U.S.-owned firms.

"The typical Chinese good exported to the United States only has about 20 percent Chinese content. Several people have used the phrase that 'China is the global assembler,'" Harvard University economist Kenneth Rogoff said.

Click in the box near the top of the story to watch a report by FOX News' Major Garrett.