After years of complaints, U.S. lawmakers have stepped up their campaign for tougher trade penalties that could force China to change its currency policy.
Last week, the Senate advanced bipartisan legislation that would make it easier to impose duties on low-priced Chinese products that benefit from undervaluation of the yuan.
"My colleagues, both Democrats and Republicans, agree that China's deliberate actions to devalue its currency give its goods an unfair competitive advantage in the marketplace," Majority Leader Harry Reid said.
"It hurts our economy. It costs American jobs," said the Nevada Democrat as the Senate voted 79-19 to open debate on the Currency Exchange Rate Oversight Reform Act of 2011.
On Thursday, the Senate postponed a final vote until this week after a floor fight over amendments and procedural rules.
The legislation, with 19 co-sponsors including Democratic Senator Charles Schumer of New York and South Carolina Republican Lindsey Graham, is the latest version of currency measures that have been debated since 2005.
While previous bills have failed to pass both houses of Congress, backers believe last year's record U.S$273 billion-trade deficit with China and millions of job losses help make their case.
Lost jobs
Last month, the non-partisan Economic Policy Institute (EPI) released a study finding that trade deficits with China have cost the United States nearly 2.8 million jobs in the decade since the country joined the World Trade Organization.
"I think the message is that this country cannot allow the loss of a single job as a result of unfairness in our trading partners," said Republican Senator Jeff Sessions of Alabama.
While the EPI study cited undervaluation as a major cause, author Robert Scott also pointed to other Chinese abuses that undercut fair competition including industrial subsidies and intellectual property theft.
"China is practicing a wide variety of predatory mercantilist trade practices," Scott told Radio Free Asia. "It is the most predatory country that we've ever witnessed in history in its trade practices."
Last week, U.S. Trade Representative Ron Kirk complained about China's support for its industries, citing nearly 200 subsidy programs in a notification to the WTO.
For the past eight years, U.S. exporters and labor groups have charged China with manipulating its currency to gain an unfair pricing advantage, pegging the yuan to the dollar at an artificially low rate.
In July 2005, Beijing acknowledged the problem by launching a currency reform that called for gradual appreciation, allowing the yuan to rise by 21 percent over the following three years.
But China abruptly stopped the strengthening to boost exports during the world financial crisis, only resuming its slow climb in June 2010.
Undervalued
The yuan has risen against the dollar by 6.9 percent since then. But in a New York Times commentary, C. Fred Bergsten, director of the Petersen Institute for International Economics, estimated the yuan is still "20 to 30 percent less than what it should be."
China has taken strong exception to the argument that its trade successes are to blame for U.S. economic woes.
"It's crystal clear that labeling China as a 'currency manipulator' is just a cheap excuse for some in Washington to launch a protectionist war," China's official Xinhua news agency said. "It is also unfair and unwise to try to make China a scapegoat for the economic problems of America's own making."
The currency bill still faces high hurdles in the House. Despite support from 226 members, including 61 Republicans, House leaders may not bring the measure to the floor for a vote.
"I think it's pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency," House Speaker John Boehner, an Ohio Republican, told reporters last week.
President Barack Obama has also voiced reservations, although he criticized China for "gaming the trading system to its advantage and the disadvantage of other countries, particularly the United States.
At a press conference on Thursday, the president indicated that details of the bill have caused concern.
"I don't want a situation where we're just passing laws that are symbolic, knowing that they're probably not going to be upheld by the World Trade Organization, for example, and then suddenly U.S. companies are subject to a whole bunch of sanctions," he said.
Sidelines
Major business groups like the National Association of Manufacturers (NAM) have also stayed on the sidelines because of divided interests among exporters, importers and investors in China.
"Our membership has divisions on this, so we don't take a position on currency legislation," said NAM spokesman Jeff Ostermayer in response to an RFA inquiry.
But increasingly, big bilateral trade gaps are seen as an unaffordable problem.
"Ask yourself: Why is it so hard to restore full employment?" asked New York Times columnist Paul Krugman on Oct. 2. "The answer is that we used to run much smaller trade deficits."
Despite problems with previous bills, the Senate measure is more likely to be enacted this time because of the drive to restore jobs, said Scott Paul, executive director of the Alliance for American Manufacturing, a group representing industry and the United Steelworkers union.
"The difference is that the United States has 9.1 percent unemployment," Paul said in an interview. "I think there's frustration with the progress that has been made."
The Senate measure has sought to deal with objections that delayed earlier versions.
The bill would revise the strict standard that the U.S. Treasury Department uses to determine deliberate currency manipulation, making it easier to cite China for "fundamental misalignment" of the yuan. A finding would trigger a call for immediate consultations to address the problem within 90 days.
If consultations fail, the administration could be required to include currency undervaluation in dumping calculations for unfairly priced imports from China. It would also lead to other steps, like opposing multilateral bank loans.
U.S. exporters would find it easier to seek countervailing duties against underpriced Chinese products, using new rules for Commerce Department decisions. Unlike some earlier versions, the legislation does not threaten to impose a 27.5- percent tariff on all Chinese goods.
Trade war?
Scott Paul dismissed the concern that passage could lead to a trade war.
"The approach in the congressional legislation is a very judicial approach based on facts and evidence. It's not an across-the-board tariff on Chinese products," he said.
"The legislation is entirely in line with U.S. obligations to the World Trade Organization and bilaterally to China," said Paul. "There could be no legal retaliation on the part of the Chinese."
Given the strong push for the legislation, it is unclear that supporters will be satisfied with another temporary speedup in China's start-and-stop appreciation, although most economists see the chance of a large one-off revaluation as slim.
But Robert Scott noted that China is already suffering from the inflationary effects of massive inflows of "hot money" in anticipation of just such a strengthening.
"In the long run, China has no choice," Scott said. "Investors are pouring money into China to invest in anything they can get their hands on because they expect that China will revalue."
"It can either accept the judgment of economists and the market that it needs to revalue by 25 or 30 percent, or it's going to continue to be flooded by hot money, which will eventually cause such high levels of inflation that their so-called real exchange rate will appreciate that much anyway," he said.
