WASHINGTON — A group of Republican and Democratic senators introduced a new approach Wednesday to push China to let its currency rise faster against the dollar.
An increase in the yuan's value would make Chinese goods more expensive in the United States and American goods cheaper in China. An undervaluation of the Chinese currency has contributed to lost U.S. manufacturing jobs and the U.S.-China trade deficit, which reached a record of more than $232 billion last year. This year's deficit is expected to be higher; China's global trade surplus reached $22.5 billion for May, up 73 percent from May 2006.
Chinese officials have said they'll eventually let markets determine the value of their currency, the yuan, but they've moved slowly toward that goal despite escalating U.S. complaints. Treasury hasn't cited China as a currency manipulator, but has tried to persuade Chinese officials to stop undervaluing the yuan.
The bill introduced Wednesday takes aim at currency-exchange problems worldwide, and doesn't specifically name China. It was introduced by Sens. Max Baucus, D-Mont., the chairman of the Senate Finance Committee, and Charles Grassley, R-Iowa, Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C.
The bill would change the Treasury Department's approach to currency manipulation. Under the present system, Treasury must prove that a country is manipulating its currency intentionally, then only negotiations are required.
The new bill specifies that whenever a country's policies make its currency "fundamentally misaligned" with the dollar, Treasury must launch negotiations with that country and take a series of escalating punitive steps if the matter isn't resolved.
After six months, the United States could calculate currency misalignment when weighing "anti-dumping" cases (involving underpriced imports) in a way that would increase penalties for violators. It also could take other steps, such as stopping U.S. government purchases from the offender. After a year, it could ask the World Trade Organization to resolve the dispute.
In a new semiannual report Wednesday, the Bush administration again didn't formally accuse China of currency manipulation, saying it didn't meet the technical requirements under U.S. law. Still, the Treasury report urged China to take "far more vigorous action" to allow more flexibility in its exchange rates and said Treasury officials would press the issue every time they met with their Chinese counterparts.
"Congress is fed up with it, and rightfully so. The exchange rate is way out of line, and what China is doing is illegal," said Morris Goldstein at the nonpartisan Peterson Institute for International Economics, which promotes free trade and globalization.
Baucus said his bill was a "reasonable response to the problems caused when currencies are significantly out of sync."
"Our bill stocks a new toolbox," he said. "These tools are more up to date than what Treasury has today, and some have a lot more torque."
Sens. Christopher Dodd, D-Conn., and Richard Shelby, R-Ala., introduced a similar bill Tuesday.
Last year Schumer and Graham proposed 27.5 percent tariffs on Chinese imports as punishment for China's undervaluation of the yuan, but they were roundly denounced as advocating blunt protectionism that could ignite global trade frictions.
Baucus said the new bill wouldn't violate World Trade Organization rules. Schumer said he expected it to pass the Senate and the House of Representatives with veto-proof majorities and become law.
Schumer said "it just boggles the mind" that Treasury hasn't cited China as a currency manipulator. He said it was as if Treasury were "tossing the ball to Congress and saying, 'You do it.' "
Goldstein, the economist at the Peterson Institute, said the bill was good overall and that technical problems in it could be resolved.
The National Association of Manufacturers called it an effective approach. "This bill seeks to tackle a major problem manufacturers have been dealing with for years within the rules of the World Trade Organization," President John Engler said.
A Treasury spokeswoman, Ann Marie Hauser, said of the bill: "We share many of the same objectives — to see China increase the flex of their currency — and we continue to believe that the most productive way to get there is through a robust dialogue like we've launched with the Chinese through the U.S.-China Strategic Economic Dialogue."
In Beijing, Foreign Ministry spokesman Qin Gang was asked at a briefing Tuesday, before Baucus and others unveiled their bill, about plans for U.S. legislation aimed at lifting the value of the yuan, also known as the renminbi (RMB).
"Some U.S. congressmen think it is undervalued. But whose criterion is this, the U.S. criterion? The RMB exchange rate shall be in line with China's national conditions and benefit China's economic development as well as that of the region and world at large," Qin said.
The bill introduced by Baucus and others can be read at the Senate Finance Committee's Web site: Go to http://finance.senate.gov and click on "legislation."
The Treasury Department's semiannual report on currency imbalances can be read at www.ustreas.gov