Members of the U.S. Congress on Tuesday threatened Beijing with duties on some of its exports if it fails to revalue its currency, pressuring the Obama administration to label China a currency manipulator.
The bipartisan bill to be introduced in the U.S. Senate on Tuesday is the latest effort by lawmakers to press China to change policies that keep its yuan currency cheap, effectively subsidizing Chinese exports and taxing competing imports.
It comes two days after Chinese Premier Wen Jiabao dismissed U.S. complaints about China's exchange-rate policy and one month before President Barack Obama's administration must decide again whether to label China a currency manipulator in a semiannual report.
The bill would authorize the Commerce Department to take currency misalignment into its calculation of import injury duties for specific products if a targeted country has not begun steps within 90 days to realign its currency, according to the draft text of the bill.
The legislation crafted by Senators Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, would require the U.S. Treasury Department to identify countries with fundamentally misaligned currencies each September and March.
Schumer and Graham are expected to be accompanied by Senators Debbie Stabenow and Sherrod Brown, both Democrats, and Senator Sam Brownback, a Republican, at an upcoming news conference.
On Monday, 130 members of Congress urged the Obama administration in a letter to label China a currency manipulator and take other steps to persuade China to raise the value of its currency against the dollar.
The proposed legislation would authorize the Commerce Department to include currency misalignment in its calculation of anti-dumping duties on specific products if a targeted country has not begun steps within 90 days to realign its currency, the bill's text said.
The bill also would deny U.S. Overseas Private Investment Corp financing for projects within countries with misaligned currencies and require the United States to oppose multilateral bank loans to the same countries.
It instructs the U.S. Trade Representative's office to initiate action at the World Trade Organization against any country that has not taken steps within 360 days to realign its currency.
It also would require the Treasury Department to consult with the Federal Reserve Board and other central banks to consider remedial intervention in currency markets if a targeted country has not acted after a year.
Several years ago, Schumer and Graham co-authored a bill that threatened China with a 27.5 percent across-the-board tariff if it did not revalue the yuan.
That bill was passed by the Senate, but Schumer and Graham eventually abandoned it when Beijing began making some movement toward revaluing the yuan.
Many U.S. lawmakers, with strong backing from economists, believe China's yuan is undervalued by 25 percent to 50 percent, giving Chinese companies an unfair price advantage in trade — a situation seen as more acute now that the U.S. economy is struggling to recover from the worst downturn since the 1930s.
China had let its currency rise in value between July 2005 and July 2008. But since then, it remained at about 6.83 yuan to the dollar, and U.S. economists say productivity gains by China have negated any real currency appreciation.
Schumer and Graham's latest effort comes as the Obama administration is weighing whether to formally label China as a currency manipulator in a semiannual Treasury Department report due on April 15.
Obama accused China of manipulating its currency for an unfair trade advantage during his 2008 election campaign. But as president, he has avoided applying the politically explosive term in two Treasury Department reports issued under his watch, and in his public comments.
Last week in a speech on his administration's plans to boost exports, he urged China to move to a "more market-oriented exchange rate," adopting the more moderate language of his predecessor, George W. Bush.
With China seen buying some $1 billion in dollars each day to keep the yuan stable, few U.S. economists dispute that China is manipulating its currency. But not all agree on what the remedy should be.
"The value of the Chinese currency, the yuan, is just a symptom. The illness is broad Chinese government intervention in the market, led by subsidies for state firms," Heritage Foundation China economist Derek Scissors wrote.
Scissors wrote in a research report released on Monday that tariffs would push production out of China to countries like Vietnam, Mexico and Bangladesh and cause producers to raise prices.
But other economists argue that the threat of a tariff might be necessary to get China to act.
Obama would enjoy broad international support if he were to confront China on the currency policies because the weak yuan hurts most of China's trading partners — rich and poor — the analysts say.
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