WASHINGTON (Reuters) - The prospects for U.S. legislation designed to get China to revalue its currency appeared to dim on Wednesday when the White House voiced concern it could violate international trade rules.
President Barack Obama has not personally joined the debate about the bill, which has won support from many lawmakers aware of how unemployment and the weak U.S. economy will feature in next year’s elections.
By contrast, the proposal has drawn warnings from Beijing that it could trigger a trade war, and has met with opposition from top Republicans and U.S. business.
“We certainly ... have concerns about this particular legislation, and whether or not it would create consistency issues with our international obligations,” White House press secretary Jay Carney told reporters.
“We have, from the beginning as an administration, worked on the issue of the undervalued Chinese currency. And it has appreciated to some degree as a result, we think, of those efforts. More needs to be done,” he said.
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 Democratic-controlled U.S. Senate is expected to approve the Currency Exchange Rate Oversight Reform Act of 2011 on Thursday. It calls for U.S. tariffs on imports from countries with deliberately undervalued currencies.
Democratic Senator Charles Schumer told reporters the bill he helped write “has broad, broad support and it would send an important signal to China that they can’t keep getting away with economic murder.”
The controversial legislation’s fate looks less certain in the House of Representatives. Its Republican leader, who has powers to block bills, called it “dangerous” on Tuesday.
Backers of the legislation in the House, however, said the measure had 225 co-sponsors, including 61 Republicans.
Democratic Senator Sherrod Brown, one of the bipartisan bill’s authors, said he was confident the Senate would vote on the bill on Thursday with minimal opposition.
“Other than those who want to stand with companies that outsource jobs to China, I don’t see where any real opposition to this bill should come from,” he said.
On Monday, the U.S. Senate voted 79-19 to start debate on the bill, prompting an angry rebuke from China’s central bank and foreign and commerce ministries.
Brown dismissed the criticism. “Where I come from we say that when you throw a rock at a pack of dogs, the one that yelps is the one you hit,” he told the Senate. “These are all arms of the Chinese Communist Party. Of course they are not happy when we do this.”
Brown urged his fellow Ohio lawmaker Boehner to return to his rustbelt home state to “see the kind of terrible job loss” that he blamed in part on China’s currency policy.
Most major business groups oppose the bill, which they say will cause more harm than good and put at risk their access to one of the world’s fastest-growing markets.
The Financial Services Forum, whose members include Goldman Sachs, JP Morgan and Bank of America, has urged Congress not to pass the bill. On Wednesday, the anti-tax Club For Growth boasted that it had scared Republicans away from the bill.
With the 2012 U.S. presidential race heating up and the jobless rate stuck above 9 percent, a top Republican presidential candidate, Mitt Romney, has called China a “cheater” and vowed to pursue the currency issue.
Republican Senator Mark Kirk of Illinois, arguing against the bill, told his Senate colleagues that China is the fastest growing export market for his and many U.S. states.
“A trade war with the second-largest economy in the world would be unwise, at best,” he said. Chinese theft of U.S. intellectual property was a far greater problem, he added.
Fred Bergsten, director of the Washington-based Peterson Institute for International Economics, estimates that a 20 percent rise in the yuan would reduce the U.S. trade deficit by $50 billion to $100 billion. At a gain of about 6,000 jobs for every $1 billion improvement in the trade balance, $100 billion would work out to 600,000 jobs.
But other economists argue that a stronger yuan would simply shift manufacturing to other low-cost producers such as Bangladesh or Vietnam, and not benefit the United States.
Writing by Paul Eckert; editing by Anthony Boadle and Mohammad Zargham