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'Jury's Still Out' On Chinese Currency Pledge, Senators Say

The U.S. trade relationship with China is under the microscope with a number of official visits and actions planned over the next few weeks, but two back-to-back briefings Tuesday exposed mixed feelings among lawmakers over the best way to approach that relationship.

Sens. Charles Grassley, R-Iowa, and Max Baucus, D-Mont., announced they were going to introduce a bill that would give the Treasury Department a heavier set of instruments that can be used against countries that are found to manipulate their currencies to the harm of the U.S. economy. At the moment, China is at the top of the list of countries concerning U.S. officials.

The U.S. government doesn't have enough options available to bring other countries in line, and "is not using every tool in the toolbox to protect the U.S. economy," Baucus said.

Policymakers and economists have long suspected that the Chinese Yuan is undervalued with respect to the dollar due to Chinese government policy that keeps the Yuan's value artificially low. The overriding theory is that a stronger Yuan would make Chinese goods and services more expensive, encouraging people to buy more American products, and shifting the trade balance favorably toward the United States.

Last July, the Chinese allowed the Yuan to float up by 2 percent, and since then it has edged up slightly more, but Grassley and Baucus said China hasn't done enough to move toward allowing their currency to trade freely. Policymakers have cited numbers that say the Yuan could be undervalued by as much as 40 percent.

"China has not lived up to its commitment," Grassley told reporters at a briefing in the Capitol.

But later in the morning, Sens. Charles Schumer, D-N.Y., and Lindsay Graham, R-S.C., appeared more jovial, if a little jet-lagged upon their recent return from China. They said they were so impressed with China's position on currency deregulation that they were delaying a vote until at least September on a bill that would impose heavy import taxes on China if they don't make moves toward strengthening their currency. They said they would even consider withdrawing the bill altogether under the right conditions.

In 2005, the value of imports from China outpaced the value of exports to China by $202 billion, according to the Commerce Department. That is more than one-quarter of the entire U.S. trade deficit for the year, $723 billion.

Trade is expected to be a top issue of discussion when Chinese President Hu Jintao and other officials visit Washington in April. Later in the month, Treasury Secretary John Snow will issue a report on China's currency, which will be looked at as another signal about whether trade relations are improving or worsening between the two nations.

Grassley said he believed the two senators have broad bipartisan support for the bill, and they plan to move forward quickly. Their bill would allow the United States to withhold international lending, prevent countries from "dumping" cheap goods in U.S. markets, and create a new Treasury Department position to focus specifically on currency issues, among other proposals. Grassley is chairman of the Senate Finance Committee, and Baucus is the top-ranked Democrat on that committee.

Winning the back of Schumer and Graham may not be so easy. The two painted a rosier picture of Chinese trade, saying their recent trip, that included Sen. Tom Coburn, R-Okla., changed their perception of China from one of a country that is generally closed to free trade to one that has realized the value of improved trade practices.

"We do believe the Chinese see the fact that manipulating their currency can't continue," Schumer told reporters. "We come back from China feeling very good."

However, their enthusiasm about China's change of attitude wasn't unbridled.

"The jury's still out," Graham said of China's commitment to floating its currency.

Schumer and Graham's bill would impose a 27.5 percent tariff on Chinese imports as punishment for currency manipulation, but would give the Chinese up to two years before the tariffs take effect.

Instead of going ahead with a scheduled vote on Friday, Schumer and Graham said they would hold off on the vote until Sept. 29, and would only bring the bill up for a vote if they didn't see "real progress" being made by the Chinese by then toward a more free-floating Yuan.

What "real progress" means was left vague. Graham mentioned recent Chinese banking reforms as a sign of progress, but didn't further specify what would constitute benchmarks. Both Schumer and Graham said they would not set a specific value for the Yuan to achieve before they would be satisfied.

Kevin Bishop, a spokesman for Graham, said Tuesday that it's more a matter of anything that moves toward a freer currency. "We'll know it when we see it," Bishop said.

A phone call seeking comment on the congressional proposals from the Treasury Department, which is charged with watching international financial issues for the administration, was not immediately returned.

Thea Lee, policy director and chief economist for the AFL-CIO in Washington, on Tuesday told FOXNews.com that labor and small business groups have a growing sense of urgency over the trade deficit with China, including currency valuation. But she said she wasn't assured by the senators' words Tuesday.

"In a general sense, increased tools for the Treasury only work if the Treasury is interested in using those tools," Lee said. But, "we've seen a remarkable lack of energy in focus of this government" in addressing currency manipulation, workers' rights violations and other issues "important to America's workers."

Lee said the AFL-CIO views the Schumer-Graham bill as a good tool, and she said she was concerned that this could signal a withdrawal from a necessarily tough stance against China.

"We don't want to see that bill put in the deep freeze," Lee said.