US House passes bill targeting China currency

WASHINGTON (AFP) – US lawmakers overwhelmingly approved a bill Wednesday to punish China for what they branded its unfairly undervalued currency, blaming the weak yuan for killing US jobs weeks before key elections.

The House of Representatives passed the legislation by a 348-79 margin, one of its strongest showings against China in years, fueled by deep voter anger at the sour economy and joblessness near 10 percent ahead of the November ballot.

The US Senate has signaled it will take up a companion bill after the elections, but the legislation’s fate is unclear and President Barack Obama has not formally taken a position on whether he supports it.

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The measure invites the US government to consider Beijing’s actions as an improper trade subsidy, and expands the powers of the US Commerce Department by allowing it to slap retaliatory tariffs on Chinese goods.

“We do this because one million American jobs could be created if the Chinese government took its thumb off the scales,” said Democratic House Speaker Nancy Pelosi.

“The US-China relationship is an important one in every way — culturally, politically, diplomatically, economically, commercially — but we need to have them play by the rules,” she said shortly before the vote.

Hours before the vote, Obama said at a campaign-style event in the heartland state of Iowa that “their currency’s undervalued” and noted that the weak yuan contributed to the yawning US trade deficit with China.

“People generally think that they are managing their currency in ways that make our goods more expensive to sell and their goods cheaper to sell here,” said the US president.

Many lawmakers, both for and against the bill, said they would prefer to see the issue get a multilateral remedy, fretting about the possibility of a trade war with Beijing that would ultimately hurt US jobs.

“We ought to be careful to avoid doing more harm than good in tearing down these barriers,” said Republican Kevin Brady, who worried the bill would hamper efforts to resolve other feuds with China over issues like rampant intellectual piracy and preferences for domestic producers in government contracts.

“Talk hasn’t worked,” said Democratic Representative Sander Levin, chairman of the House Ways and Means Committee that writes tax and trade law, and a key supporter of the legislation. “Real action is now being taken.”

Representative Dave Camp, the top Republican on Levin’s panel, backed the bill but stressed it sent “an important signal” to Obama that “it’s time to produce results” on trade and China issues.

Some critics of the bill have warned that, even if it forced China to let market forces decide the yuan’s value, the bill would chiefly benefit other Asian economies where manufacturing is still cheaper than in the United States.

Hours before the House vote, China’s central bank pledged in a statement on its website to “increase currency flexibility” and vowed to “gradually improve the exchange rate setting mechanism.”

The People’s Bank of China used nearly identical language in a similar promise in June, after which the yuan strengthened less than two percent against the US dollar.

And China has a history of allowing the yuan to strengthen slightly ahead of events at which it expects to come under heightened pressure over the value of its currency, which critics say is grossly undervalued.

The US president made his case to Chinese Premier Wen Jiabao on the sidelines of the UN General Assembly last week, but his appeal did not appear to yield a breakthrough, and China has denied doing wrong.

US Treasury Secretary Timothy Geithner told lawmakers earlier this month “it is very important that China hear from the Congress” on the issue but also promised action at the upcoming G20 summit.

China pledged in June to loosen its grip on the yuan, which had been effectively pegged at about 6.8 to the dollar since mid-2008. Since then, the currency has gained less than two percent against the greenback.

The central bank on Wednesday set the yuan central parity rate — the middle of the currency’s allowed trading band — at 6.6936 to the dollar, the strongest rate against the greenback since the summer pledge.

Major US trade associations wrote top lawmakers a letter Tuesday warning the bill could spark a “counterproductive” trade feud that could cost US jobs.

But Democratic Representative Tim Ryan, a lead author of the House bill, scoffed, declaring: “If this risks upsetting the People’s Republic of China, so be it.”

Courtesy of AFP Wire.

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