UPDATE 1-China yuan bill risks trade war -US House speaker

Wed Oct 12, 2011 12:29pm EDT

* Boehner restates opposition to currency bill

* Speaker could stifle House debate

* China denounces protectionist move

WASHINGTON, Oct 12 (Reuters) - Legislation designed to press China to let its currency rise in value poses a "very severe risk" of a trade war and should not be taken up by the U.S. Congress, House of Representatives Speaker John Boehner said on Wednesday, a day after the bill passed the Senate.

Boehner, the top Republican in Congress, has consistently voiced opposition to the measure, which would allow the U.S. government to slap countervailing duties on products from countries found to be subsidizing their exports by undervaluing their currencies.

"I think, given the volatility in the world markets, given the uncertainty about the world economy, for the Congress of the United States to be taking this step at this moment in time poses a very severe risk of a trade war and unintended consequences that could come as a result," he told reporters.

"I understand that people are concerned about the value of China's currency. I'm concerned about it as well," said Boehner.

"What I don't believe is appropriate is for the Congress of the United States to take this issue up and to do it within a legislative form," he added.

Following a week of debate, the Democratic Party-controlled Senate approved the bill in a 63-35 vote on Tuesday and sent it to House of Representatives, where the traditionally pro-free-trade Republicans hold a majority.

Boehner's opposition could kill the bill before any House debate, but supporters are trying to rally colleagues behind a legislative tactic that would force him to bring up the legislation.

Chinese Foreign Ministry spokesman Ma Zhaoxu on Wednesday called the bill a protectionist step that "gravely violates World Trade Organization rules."

"China urges the U.S. government, Congress and all quarters to resolutely oppose using domestic legislation to create a fuss about and put pressure on the renminbi exchange rate," said Ma in comments on the ministry's website (www.mfa.gov.cn).

Chinese officials and media have warned that the legislation could trigger a "trade war" of escalating protectionist tit-for-tat retaliation.

Mostly Democratic supporters of the bill, alarmed at high unemployment a year before congressional and presidential elections expected to focus on the economy, say China's yuan policy already amounts to a trade war that has decimated the U.S. industrial base with artificially cheap products.

Charles Schumer, the No. 3 Democrat in the Senate and a longtime critic of China's yuan policy, predicted that the House would pass some form of China currency legislation due to pressure from rank-and-file Republican members.

"I think there's going to be huge pressure in the House by House Republicans, many of whom are from the Middle West and the South, to do something on China currency other than do nothing," said Schumer.

A second Republican leader, chairman Dave Camp of the House Ways and Means Committee, said he would hold a hearing on currency, intellectual property rights and other trade issues with China this month.

"We have a complex relationship with China, an important relationship with China," Camp said.

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 notes that the yuan has risen 30 percent against the dollar since 2005.

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