Senators seek probe into China's yuan peg

An employee counts Renminbi banknotes at a Bank of China branch in Changzhi, Shanxi province November 13, 2009.

WASHINGTON (Reuters) - Expressing frustration over the Obama administration's light touch on China's yuan exchange rate, two U.S. senators asked the Commerce Department on Thursday to investigate alleged Chinese currency "manipulation."

Sen. Charles Schumer, a New York Democrat, and Sen. Lindsey Graham, a South Carolina Republican, said the department has legal authority to determine whether China's currency practices are a form of subsidy and if so, impose tariffs on Chinese imports.

The two lawmakers have attempted to pass punitive tariff legislation against China in recent years to pressure it into floating its currency, and Schumer threatened on Thursday to revive the effort.

"Commerce has authority under existing law to initiate investigations that can help U.S. industries and protect U.S. jobs, and we are urging the Department to use that authority," the senators wrote in a letter to Commerce Secretary Gary Locke.

A Commerce Department spokesperson was not immediately available for comment.

The letter comes as President Barack Obama returns from an extended trip to China and other Asian countries in which he urged China's President Hu Jintao to move to a more market-oriented exchange rate.

Hu ignored the overtures and instead dwelled on trade protectionism, which he said unfairly threatens access to U.S. markets.

DIFFERENT PRESIDENT, SAME STANCE

Schumer and Graham criticized Obama for taking essentially the same stance as the Bush administration did for years in failing to make a formal determination that China is manipulating the yuan.

The senators, U.S. manufacturers and labor groups say the yuan is pegged at an artificially low value against the dollar to give China a cost advantage in trade.

After U.S. Treasury Secretary Timothy Geithner said in January that Obama believes China was manipulating the yuan, the Treasury twice this year declined to formally label China a currency manipulator -- a step that could trigger negotiations and possible trade sanctions.

Instead, Geithner has spent much of the year praising China for its massive stimulus spending, which he credits with helping stabilize the world economy.

But Schumer told Geithner at a Joint Economic Committee hearing that he and Graham would "do some things legislatively" to resolve an "infuriating" deadlock over the yuan's value that has cost the jobs of hundreds of thousands of Americans.

"They are mercantilist in my opinion and they want to accumulate their wealth in reserves and while they occasionally give verbiage, they give the back of their hand to the world economy, even though they gain from it," Schumer said. "And frankly, I am tired of us just shrugging our shoulders and walking away."

Geithner responded by saying that he believes that China understands the importance of moving toward a more flexible exchange rate and would do so, but he could not say when this would happen.

"It makes it harder for the financial system to work when you have a large country like that (China) tying its currency directly to the dollar. I think that's going to have to change and I think it will change over time, and my own sense is that it's not going to take that much time."

China began a program of increased yuan flexibility in July 2005 and steadily strengthened its value, from about 8.2 yuan to the dollar to around 6.8 by July 2008. But the yuan has been held at roughly that level ever since that time, when the financial crisis significantly worsened.

(Reporting by David Lawder; Editing by Jan Paschal)