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US Congress moves to punish China on currency

September 25, 2010

The US Congress moved to open the way for retaliation against China over its currency, warning that it has lost patience with quiet efforts to press Beijing to let its yuan appreciate.

One day after President Barack Obama pressed Chinese Premier Wen Jiabao on currency in a meeting in New York, Obama's allies in Congress approved a measure that accuses Beijing of killing US manufacturing jobs with its yuan.

The House Ways and Means Committee, which writes tax laws, voted to expand the powers of the Commerce Department to allow it to impose tariffs when another nation is found to be manipulating its currency's value.

Under longstanding regulations, the Commerce Department can only impose tariffs on foreign goods if the producer country directly subsidizes an export.

The committee sent the bill to the full House, which is now set to vote on the measure next week, House Majority Leader Steny Hoyer said.

"While a multilateral approach to addressing this issue is preferable, we cannot wait any longer to level the playing field for US businesses and protect American manufacturing jobs," Hoyer said in a statement.

"We recognize the efforts China is making toward reform, but they need to act faster to allow their currency to appreciate."

Critics accused Obama's Democratic Party of rushing the measure in a last-ditch attempt to ensure labor union support ahead of November 2 elections, in which the wobbly US economy is the headline issue.

Representative Kevin Brady, a Republican from Texas, said that increasing US companies' access to China's consumer market and defending US intellectual property rights "would benefit thousands more American workers than a focus on Chinese currency alone."

"I am also suspicious that after four years of controlling Congress, Democrats are now rushing this bill to the House floor in the final weeks ahead of the election. Playing politics with an issue this serious is risky for American workers," Brady said.

But another Republican, Representative Dave Camp, supported the bill after the Democrats revised it to address concerns it would violate US commitments under the World Trade Organization, leading to repercussions.

The bill would "send a clear signal to China that Congress' patience is running out, without giving China an excuse to take it out on US companies and their workers," said Camp, who represents economically struggling Michigan.

Even if the House approves the measure, it is uncertain if the United States would impose tariffs. The Senate has not moved on legislation, and even if the law passes, retaliation would be at the discretion of the administration.

The Obama administration has sought broader relations with China and has preferred quiet diplomacy, resisting congressional calls to brand Beijing officially as a manipulator of its currency.

China has given no signal it will budge. Wen, in a speech ahead of his meeting with Obama, rejected a drastic appreciation of the yuan, warning that it would cause Chinese companies to go bankrupt and workers to lose their jobs.

The US-China Business Council, which represents US firms that do business in China, feared that Beijing would retaliate and start a trade war, ultimately hurting US companies.

"The Obama administration's multilateral and bilateral approach should be supported and continued, not undermined," said the Council's president, John Frisbie.

Frisbie warned that a higher yuan may only result in other emerging economies such as Vietnam and Mexico taking over as a source of low-cost goods, yielding no benefits for either US workers or consumers.

But the United Steelworkers labor union enthusiastically supported the legislation, blaming China's currency policy in part for the shutdown of some 57,000 US factories and the loss of six million jobs over the past decade.

"For our members and working Americans across the country, the American dream is becoming a thing of the past," union president Leo Gerard said.

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