WASHINGTON – Chinese President Hu Jintao's high-profile visit to Washington this week comes as newly elected Republican lawmakers are itching to act against what they see as an undervalued Chinese currency that is costing American jobs.
But they could run into resistance from leaders of their own party. Congress may be less likely to pass legislation on the issue than it had been last year, when both chambers were under Democratic control. A bill to give U.S. companies a means of challenging what they view as an unfair export subsidy sailed through the House, but died in the Senate.
Three Democratic senators — Charles Schumer of New York, Debbie Stabenow of Michigan and Bob Casey of Pennsylvania — plan to introduce legislation this week to address the currency issue.
"The American dream is imperiled" by China, Schumer said in a conference call Monday with reporters.
If passed the legislation would impose stiff new penalties on designated countries that misaligned currency in a way that unfairly harmed U.S. trade. Penalties would include tariffs on exports and a ban on any companies from those countries from receiving U.S. government contracts.
The new House speaker, Rep. John Boehner, voted against the bill. Rep. Dave Camp, R-Mich., the new chairman of the House Ways and Means Committee, voted in favor. But he has appeared unenthusiastic about focusing strictly on currency while ignoring trade barriers and other issues. Without the support of such senior Republicans, the bill may never reach the House floor for a vote.
Still, with unemployment at 9.4 percent and a presidential election looming in 2012, the issue won't go away. It is a priority for many lawmakers from both parties, including some new ones from the tea party movement that has reinvigorated the Republican Party — and isn't afraid to challenge party leaders.
Charles Freeman, a former U.S. trade negotiator with China, was struck by the eagerness of new lawmakers to act when he participated in a recent briefing for them. "This is a crowd that is anxious to do something," he said.
U.S. manufacturers say the Chinese government intervenes in currency markets to hold down the value of the yuan against the dollar by as much as 40 percent, making Chinese products cheaper for Americans while increasing the price of U.S. goods in China. Since China announced it would allow more flexibility in its exchange rate last June, the yuan has appreciated just 3 percent against the dollar. China's leaders say relaxing currency controls too abruptly would damage its financial system, hurt its exporters and wipe out Chinese jobs.
Ahead of his visit, Hu said in written responses to questions from The Washington Post and Wall Street Journal that China has adopted a "managed floating exchange rate regime" determined by the balance of international payments and supply and demand. He gave no indication that a major shift in the exchange rate was imminent.
Currency is just one of many critical aspects of the U.S.-China relationship. The economies of the two giants are deeply intertwined. Trade between them is worth $400 billion, up from around $100 million 30 years ago when the U.S. formalized diplomatic relations with the communist government. The U.S. relies on China's purchase of Treasury securities to help breach the yawning budget deficit.
The Obama administration also needs Beijing's cooperation on combating climate change, in dealing with reclusive North Korea — which has recently unveiled a new means of making material for nuclear bombs — and bolstering the international pressure on Iran because of its nuclear program.
The White House has tried to strike a balance between pressuring China on currency while not undermining its relationship in other areas.
Treasury Secretary Timothy Geithner last week criticized China for moving too slowly on allowing the yuan to appreciate, and said it was pursuing an untenable economic policy. But he still appears to favor a lower-key approach of continuing to engage China on the currency issue rather than using the blunt instrument of the law, said Nicholas Lardy, senior fellow at the Peterson Institute for International Economics.
Lardy said he expects President Barack Obama would likely veto any currency legislation passed by Congress, though the president has not taken a public stand.
That is unlikely to deter lawmakers from trying again.
In addition to the legislation by the three Democratic senators, Sen. Lindsey Graham, R-S.C., said he planned to reintroduce a bill early this year to give the Treasury more tools to act against China's currency "manipulation." Graham, who has for years joined forces on the issue with Schumer, acknowledged "fault lines" in his own party on whether to push currency legislation.
"Working men and women are losing jobs because of unfair trade manipulation, and it's a politically tenuous place for the Republican Party to be to be seen as defending that," he said.
Also, Rep. Sander Levin, a Michigan Democrat who sponsored the bill passed in the House last year 348-78, is likely to reintroduce it if — as expected — there is no breakthrough on the currency issue when Obama and Hu meet Wednesday.