WASHINGTON (Reuters) - A U.S. bill to pressure China into letting its currency rise in value, which has drawn warnings from Beijing of a possible trade war, ran into opposition from the top Republican in Congress on Tuesday.
The strong misgivings of House of Representatives Speaker John Boehner were the first clear sign the currency legislation might fizzle out, as similar bills have done since lawmakers began targeting China’s yuan policy in 2005.
“I think it’s pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency,” Boehner told reporters.
“While I’ve got concerns about how the Chinese have dealt with their currency, I‘m not sure this is the way to fix it.”
On Monday, the Senate voted to open debate on a bill that calls for U.S. tariffs on imports from countries with deliberately undervalued currencies, prompting an angry rebuke from China.
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.
House speakers normally get their way on legislation. But Boehner has to contend this time with signs of growing support from rank-and-file members of his own party for the currency bill and tough talk about China from a top Republican presidential candidate, Mitt Romney.
Democrats piled pressure on Boehner, urging him to keep a promise he made when he took office in January and let the House ”work its will.
“For some inexplicable reason, the Republican leadership in the House is siding with the Chinese government. This is not the time to go soft on Beijing,” said Democratic Senator Charles Schumer, a co-author of the currency bill.
“The Chinese only understand one thing: being tough,” he said on the Senate floor, rejecting calls from other senators for multilateral talks.
Republicans are split on the yuan issue. Many lawmakers in the party traditionally oppose actions that might violate free trade principles. But Romney has said he would name China a currency manipulator on his first day in office if elected.
Despite Boehner’s expressed doubts about the bill, backers of the legislation in the House said the measure now had 225 co-sponsors, including 61 Republicans. The bill is expected to face a vote in the Democratic-led Senate later this week.
Brian Gardner, senior vice president of Washington Research at investment banker Keefe, Bruyette & Woods, said he mostly agreed with “the conventional wisdom” the bill would die in the House, but noted there were reasons it might not.
“First, there has been no definitive statement by House Republican leaders that they will not take up the bill. While they do not support the bill, they are keeping their powder dry and letting the political situation work itself out before determining how they handle the bill,” Gardner said.
“Second, many Republicans support the bill.”
China has accused lawmakers of pandering to U.S. voters before next year’s presidential and congressional elections.
China’s central bank and the ministries of commerce and foreign affairs accused Washington of “politicizing” currency issues and putting the global economy at risk of a trade war.
U.S. critics of the bill have also warned it could stoke trade tensions just as the world economy is facing a sharp slowdown in growth. The Financial Services Forum, whose members include Goldman Sachs , JP Morgan and Bank of America, urged Congress on Tuesday not to pass the bill.
In a hint of unease about the bill at the White House, a top U.S. official said the Obama administration had begun discussions with lawmakers about whether it was “the right approach” to the long-running currency issue.
Acting U.S. Commerce Secretary Rebecca Blank told CNBC television the best solution to what American officials view as an undervalued Chinese currency remained “an open question,” despite signs of bipartisan support for legislation.
“The administration is talking with people in the Senate about whether this bill is the right approach or whether there are other approaches to take,” she said.
White House spokesman Jay Carney said the administration was still reviewing the currency bill.
“We share the concerns of members (of Congress) about the valuation of the currency and the need to appreciate it,” he told reporters aboard Air Force One. The administration wanted to be sure any measure met U.S. “international obligations.”
Senators voted 79-19 on Monday to open a week of debate on the Currency Exchange Rate Oversight Reform Act of 2011, 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.
Many of the world’s top economic policy-makers have long urged China to allow its currency to strengthen as a way to help fix the imbalances in the global economy that have been blamed for contributing to the financial crisis of 2007-09.
Federal Reserve Chairman Ben Bernanke told U.S. lawmakers on Tuesday the yuan policy, as well as contributing to high inflation in China, hindered “a more balanced growth path.”
In an argument that has gained traction with U.S. unemployment stuck above 9 percent and as 2012 elections draw near, supporters of the bill say that if the yuan were allowed to rise, U.S. exports to the fast-growing Chinese market would increase, cutting an annual trade gap of more than $250 billion and creating jobs in the United States.