Obama hits China on trade; cautious on currency bill

WASHINGTON Fri Oct 7, 2011 9:49am EDT

Workers use electric irons to smooth out a Communist Party of China flag on a table at the Beijing Jingong Red Flag factory located on the outskirts of Beijing, June 28, 2011. REUTERS/David Gray

Workers use electric irons to smooth out a Communist Party of China flag on a table at the Beijing Jingong Red Flag factory located on the outskirts of Beijing, June 28, 2011.

Credit: Reuters/David Gray

WASHINGTON (Reuters) - President Barack Obama accused China on Thursday of "gaming" international trade by keeping its currency weak, but was cautious about a bill before the Senate aimed at pressing Beijing to revalue the yuan.

The legislation, which calls for U.S. tariffs on imports from countries with deliberately undervalued currencies, will head toward a final Senate vote on Tuesday after efforts to bring action to a close faltered on Thursday.

Obama stopped short of explicitly backing the legislation and he restated concerns that any measure must comply with global trade rules. Still, in his toughest language on China to date, the president echoed the sponsors of the bill.

The measure, which has drawn warnings from Beijing that it could trigger a trade war, is still widely expected to pass.

"China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States," Obama told a news conference focused on his bid to revive a weak U.S. economy.

"Currency manipulation is one example of it," he said.

Obama, who faces a tough bid for re-election next year, did not say whether he would sign or veto the legislation if it reached his desk. Both the Senate and the House of Representatives would have to approve the measure first.

"My main concern ... is whatever tools we put in place, let's make sure that these are tools that can actually work, that they're consistent with our international treaties and obligations," Obama said.

"I don't want a situation where we're just passing laws that are symbolic knowing that they're probably not going to be upheld by the World Trade Organization," he said.

The authors of the bipartisan Currency Exchange Rate Oversight Reform Act insist the bill complies with WTO rules

BOEHNER CALLS BILL "WRONG" AND "DANGEROUS"

Many economists say China holds down the value of its yuan currency to give its exporters an edge in global markets. China says it is committed to gradual currency reform and notes that the yuan has risen 30 percent against the dollar since 2005.

The Senate voted 62-38 on Thursday to curtail debate and send the bill toward a final vote in that chamber following a dispute between Republicans and Democrats over which amendments would be considered.

Supporters say that decision, which required a super-majority of 60, virtually guarantees Senate approval, but the bill faces stronger opposition in the House where it may never face a vote.

"For the Congress of the United States to pass legislation to force the Chinese to do what is arguably very difficult to do I think is wrong, it's dangerous," House Speaker John Boehner said on Thursday.

"You could start a trade war," he warned.

Some bill supporters, such as Senator Sherrod Brown, a Democrat from Boehner's home state of Ohio, say that won't happen because China can't afford a trade war with a country that annually buys more than $300 billion of its goods.

Others argue the United States is already in a battle for its economic life and not doing enough to defend itself.

"We're in a trade war," said Brian O'Shaughnessy, chairman of 210-year-old Revere Copper in Rome, New York, a maker of copper and brass products used in electrical, construction and other markets, who backs the legislation. "We're in an economic war for jobs and we're not fighting it. We're losing it."

Boehner has the power to block the bill in his chamber, even though backers of the legislation say it has 225 House co-sponsors, including 61 Republicans -- enough for passage if it came to a vote.

House Democratic leader Nancy Pelosi lost no time in stepping up pressure on the Republican leader.

"Now is the time for the House Republican leadership to stand with American workers by allowing the House to pass the bipartisan China currency bill, and put more Americans back to work," she said in a statement.

"We are in a very abusive relationship with China," that is costing the United States more than 1 million jobs, Pelosi told reporters later.

During his news conference, Obama touted his administration's record on pursuing cases against China at the World Trade Organization. He also noted he had taken great pains to stabilize ties with Beijing that have been dogged by disputes over trade, human rights and U.S. arms sales to Taiwan.

VOTES VS. DIPLOMACY DILEMMA

If the House were to pass the bill, Obama would face a dilemma. 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.

But vetoing the bill would not play well in industrial heartland states like Ohio and Michigan, and could undercut Obama's bid for second term. A leading Republican candidate, Mitt Romney, has vowed to crack down on China over currency.

"I think Obama would prefer not to take a position, but if he wants to be consistent with his past policies and statements, he will sign the bill," said Scott Paul, executive director of the Alliance for American Manufacturing.

Obama said he believed "a win-win trading relationship with China" was possible.

But he said competing with the world's second-biggest economy requires Washington to "make sure that we're aggressive in looking out for the interests of American workers and American businesses and that everybody is playing by the same rules and that we're not getting cheated in the process."

Underscoring that stance, Trade Representative Ron Kirk accused China of flouting WTO rules by failing to notify the world trade body of nearly 200 Chinese government subsidy programs.

"The situation was simply intolerable," Kirk said in a statement, which also scolded India for being delinquent with the subsidy reports.

(Additional reporting by Jason Lange, Andy Sullivan and Donna Smith in Washington and Nick Zieminski in New York; Writing by Paul Eckert; Editing by Philip Barbara, Paul Simao and Eric Walsh)