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Senate passes China yuan bill, House fate unclear

12 October 2011 08:19 (UTC +04:00)

Beijing has warned the legislation could spark a trade war but the bill has advanced further than similar ones in the past, reflecting widespread frustration with China’s trade policies and how U.S. lawmakers have seized on voter anxiety about high unemployment ahead of elections in 2012.

The vote on Tuesday "has put the Chinese on notice: ’Stop your cheating that is costing our country jobs, or you will face the consequences,’" said Democratic Senator Charles Schumer, one of the bill’s co-sponsors.

China was quick to respond. The Foreign Ministry said the bill was a protectionist step and warned that its passage could disrupt joint efforts by the world’s two biggest economies to prop up the global recovery. It urged the Obama administration to oppose the legislation.

China’s central bank said the yuan is not the primary cause of China’s trade surplus with the United States that Washington puts are more than $250 billion.

The People’s Bank of China added that any gains in the yuan would not improve the American jobs market, where the unemployment rate remains stubbornly above 9 percent, or help the United States tackle its trade deficit.

Many U.S. economists say China holds down the value of its yuan to give its exporters an edge in global markets. China says it is committed to gradual currency reform and points to a 30 percent rise in the yuan against the dollar since 2005. The bill would allow the U.S. government to slap duties on products from countries found to be subsidizing their exports by undervaluing their currencies.The yuan fell against the dollar in early trade on Wednesday, as investors worried a Sino-U.S. trade dispute could cause a Chinese retaliation to stop the yuan’s steady appreciation.The Senate’s 63-35 vote puts the bill in the hands of the Republican-controlled House. However, it may never vote on the bill despite rank-and-file support.

House Speaker John Boehner last week said it would be "dangerous" for Congress to get involved with a foreign country’s exchange rate.

That stance prompted House Democratic Leader Nancy Pelosi to accuse Boehner of "thwarting the will of the House." Even if the House passes the bill, a final decision would rest with Obama. Signing it would anger China, whose cooperation the United States needs both on the economic front and in global hot spots such as North Korea and Iran. But vetoing the bill would not play well in industrial heartland states like Ohio and Michigan, and could undercut Obama’s bid for a second term in next year’s presidential election.