A US congressional panel turned up the pressure on China over the yuan yesterday, approving a bill that would let the United States slap punishing duties on imports from China.
In a move likely to increase trade tensions with China, the House of Representatives Ways and Means Committee backed the legislation on a voice vote and cleared the way for the full House to take it up next week.
The measure may never become law, however, as it faces an uncertain future in the Senate.
Sander Levin, the committee chairman, said the bill would give the US new tools to address China's "currency manipulation" because diplomaticpressure has not yielded satisfactory results.
The panel's approval came one day after US President Barack Obama pressed Chinese Premier Wen Jiabao on its currency in talks on the sidelines of the UN General Assembly meeting.
Obama urged China to do more to move its currency toward a market-based exchange rate, and Wen said Beijing planned to push ahead with reforms, disclosed Jeffrey Bader, a senioradviser to Obama on Asian issues.
The Obama administration has performed a cautious balancing act over the legislation. Senior US officials have not publicly embraced it but neither have they sought to block it, leaving the door open for lawmakers to press ahead.
"We will carefully examine any proposals put forward by Congress, but we have not taken a position on the legislation," a Treasury spokesman said.
Republican critics said Democrats were raising the currency issue now with the hope it will help them in the November 2 elections, which have been dominated by a fiercedebate over the struggling economy and persistently high unemployment.
The panel's top Republican, Dave Camp, said he backed the bill because changes made to the legislation would bring it more into line with World Trade Organization rules.
If the measure becomes law, China would likely challenge it at the WTO, exposing US exports to trade retaliation if Beijing won the case.
Wen said on Wednesday that the exchange rate of the yuan against the dollar is not the main reason for the US trade deficit with China.
The bill amends US trade law to essentially allow the US Commerce Department to treat an undervalued currency as an export subsidy if certain criteria are met.
Ways and Means Committee aides said the bill does not guarantee the Commerce Department would apply countervailing duties against undervalued currencies, but removes an important hurdle.
Earlier this week, eight former US Commerce Secretaries and Trade Representatives warned that expanding the US countervailing duty law to treat undervalued currencies as a subsidy could backfire on the United States.
Currency legislation could undermine US pressure on China to lower trade barriers, stop piracy and counterfeiting and change policies that threaten other US intellectual property rights, they said.