China faces US punishment for "controlling yuan"

2011-10-11 12:45:31

Defying Chinese anger and White House warnings, the US Senate was set Tuesday to approve legislation to punish China for alleged currency manipulation widely blamed here for costing American jobs.

The proposal, powered by a tide of US voter frustration at a sour economy and high unemployment ahead of November 2012 elections, envisions retaliatory duties on Chinese exports if the yuan's value is unfairly "misaligned."

The Democratic-held Senate was due to approve the measure after 5:30pm (2130 GMT, 5.30am Singapore time), shifting the spotlight to the Republican-led House of Representatives, where Speaker John Boehner has condemned the "dangerous" bill.

"You could start a trade war. And a trade war, given the economic uncertainty here and all around the world -- it's just very dangerous, and we should not be engaged in this," Boehner said recently.

US President Barack Obama last week stopped well short of backing the legislation and worried it could violate World Trade Organisation (WTO) rules even as he mounted an unsparing attack on China's trade policies.

"China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States," he declared at a White House press conference.

Few in Washington dispute the charge that China keeps the yuan unfairly low against the dollar, giving its goods as much as a 30 per cent edge over similar US products, widening the American trade deficit and costing jobs here.

But the measure's opponents warn that it risks sparking a trade war with China, and say a rise in the yuan will boost manufacturing and therefore jobs in countries such as Vietnam or Malaysia -- not in the United States.

They also contend that, if successful, the bill will increase the cost of commodities or consumer goods from China, hurting rather than helping US businesses and families.

The legislation's backers, an unusual coalition of Democrats and Republicans, have said it's time for Washington to take on Beijing, and predict a boost in the yuan will make Chinese workers wealthier and more likely to buy US goods, thus creating jobs and narrowing the trade gap.

They also say that current US law and multinational dispute mechanisms have failed to curb what they call Beijing's unfair practices, which also include favouring Chinese producers for government contracts and tolerating rampant intellectual piracy.

Republican House leaders have pointed out that Obama's Treasury Department has refrained from labelling China a currency cheat and said they have no plans to bring the legislation up for a vote, effectively killing it.

But House aides say it could return to life if the issue somehow became a core dispute as Obama faces off with his as-yet-undetermined Republican foe ahead of next year's elections.

The bill would empower US businesses and, in some cases, labour unions to trigger a US government investigation into alleged currency manipulation and seek retaliatory duties on the offending country's exports.

It also aims to make it harder for the US Treasury to stop short of labelling China a currency manipulator and to restrict the White House's ability to waive the resulting sanctions.

China, which has let the yuan rise against the dollar as it faces stubbornly high inflation at home, has repeatedly denounced the bill and on Sunday urged Washington to set it aside.

In a statement, Beijing's foreign ministry reiterated its "firm opposition" to the bill. "China... urges the United States to abandon protectionism and stop putting pressure on China using domestic legislation," it said.

The legislation has split the top two Republican White House contenders, with Texas Governor Rick Perry opposing it and former Massachusetts governor Mitt Romney saying he would confront China on his first day in office.