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US Senate passes China currency bill

world Updated: Oct 12, 2011 09:07 IST

Defying Chinese anger and White House warnings, the US Senate passed legislation to punish Beijing for alleged currency manipulation widely blamed here for costing American jobs.

Lawmakers voted 63-35 to approve the measure, which faced a gloomy future in the Republican-led House of Representatives amid warnings from leaders there that it could spark a trade war between the two economic giants.

"We are in trade war. But today we're fighting back," said Democratic Senator Sherrod Brown, one of the bill's chief champions, celebrating an end to "the unilateral disarmament approach we've taken for the past decade."

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 value of the yuan is unfairly "misaligned."

Republican House Speaker John Boehner has signalled that he will not bring the legislation to a vote, calling it "dangerous" to economic relations between the world's number-one and number-three economies.

"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.

President Barack Obama last week declined to back the legislation and worried it could violate World Trade Organisation (WTO) rules even as he accused China of "gaming the trade system" in a way that hurts the US economy.

Appearing on Bloomerg TV, US Treasury Secretary Timothy Geithner reiterated Obama's concerns about breaking international trade rules but, asked whether senators had fired the first shot in a trade war, replied: "They did not."

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

But the measure's opponents warn that it risks worsening ties with China, and say a rise in the yuan would merely boost manufacturing and 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.