The House of Representatives is poised on Wednesday to pass legislation to pressure China to let its yuan currency rise more quickly, fanning the flames of a long-running dispute over trade and jobs.
The House is expected to approve, with bipartisan support, a bill to treat China's exchange rate as a subsidy, opening the door to additional duties on Chinese goods entering the United States, some of which are already subject to special levies.
But the measure must gain Senate approval and be signed into law by President Barack Obama -- by no means a sure bet.
U.S. lawmakers have long brandished the sword of trade retaliation for what they see as China's deliberate policy of undervaluing the yuan, which they say gives its exports an unfair edge in global markets, but have never sent the president any legislation to be signed into law.
Obama and Chinese Premier Wen Jiabao discussed China's currency and huge trade surplus with the United States during a meeting on the sidelines of the U.N. General Assembly last week, aides said, but declined to discuss the sensitive issues with reporters after the meeting.
Ahead of the vote, China's central bank reaffirmed its long standing pledge to increase the flexibility of the yuan and improve the way it manages the exchange rate.
"We will further improve the yuan's exchange rate formation mechanism, let market supply and demand play a key role in its adjustment with reference to a basket of currencies and increase exchange rate flexibility," it said in a summary of the third-quarter meeting of its monetary policy committee.
The House move, little more than a month before U.S. congressional elections, is certain to further roil relations with Beijing, which resents the criticism and says it is its decision alone how fast to proceed with currency reforms.
In another brewing trade row, more than 180 U.S. lawmakers urged Obama on Tuesday to fight back against what they called China's "unfair" tactics to spur development of clean energy technologies within its borders.
PATIENCE WEARING THIN
Representative Tim Murphy, a Republican who helped craft the bill, said on Tuesday patience with China has run out.
"We cannot rely on the Chinese government to voluntarily do the right thing. ... The expiration date for appeasement has long since past," Murphy said in a speech predicting the currency bill would pass with bipartisan support.
The White House has not taken a position on the bill, although House Majority Leader Steny Hoyer said lawmakers had worked with the Obama administration to make sure the legislation did not violate World Trade Organization rules.
The outlook for Senate approval is also uncertain, but supporters are pushing for a vote when lawmakers return from November 2 elections.
After holding the yuan steady against the dollar through the financial crisis, Beijing began to allow for an upward drift against the dollar on June 19.
Since then it has risen to its highest level against the dollar in more than five years, but at just over 2% the gain is far short of what U.S. lawmakers want.
U.S. Treasury Secretary Timothy Geithner told Congress two weeks ago the United States would work with other Group of 20 nations to push China to let the yuan strengthen faster.
G20 leaders are set to meet in Seoul November 10-11. That would give U.S. senators time to gauge any further moves from China before deciding what to do with the legislation.
Brazil's central bank governor Henrique Meirelles said on Tuesday he agreed G20 leaders should address global currency imbalances at their next summit. But many G20 countries are reluctant to specifically discuss the yuan.
The U.S. House legislation reflects long-standing concern that China deliberately undervalues its currency by as much as 25 to 40% to give its companies an unfair trade advantage that lawmakers say costs Americans their jobs.
It addresses that issue by allowing the Commerce Department to treat "fundamentally undervalued currencies" as an illegal export subsidy so U.S. companies can request a countervailing duty to offset China's price advantage.
Passage of the bill would further strain an already complex and difficult, but vital, diplomatic relationship between two of the world's economic heavyweights.
In recent months, Washington and Beijing have also sparred over Chinese government procurement policies, Internet censorship, U.S. arms sales to Taiwan and U.S. sympathy for the Dalai Lama, the exiled Tibetan spiritual leader.
Bilateral ties have been complicated by tensions between China and its neighbors South Korea and Japan, who are U.S. security allies. U.S. support for Southeast Asian countries with competing territorial claims with China in the South China Sea is also a point of Sino-American contention.
Senator Sherrod Brown, an Ohio Democrat, said he expected the Senate to vote on the House bill or a similar package after lawmakers return to Washington in November.
MANY FARM GROUPS WANT BILL REJECTED
Whether that happens could depend on the size of the vote in the 435-member House, said Charlie Blum, executive director of the Fair Currency Coalition, an association of steel, textile and labor groups that have pressed Congress for years to deal with the currency spat.
"I think (the vote) will be large. It will be bipartisan. The WTO issue looks like it's under control, which certainly helps," Blum said.
"It also depends on what the Chinese do. So far they've been our biggest ally by not moving very much."
But many other major farm and business groups want the bill rejected, fearing it could lead to retaliation and make China unwilling to address other U.S. trade concerns.
"Above all this legislation will do more harm than good to job creation and economic growth at a time when we need both dearly," the U.S. Chamber of Commerce and 35 other groups said in a letter to congressional leaders.
House Democrats are pushing the China bill as part of their "Make it in America" agenda to revive U.S. manufacturing.
But Representative Dave Camp, the top Republican on the powerful House Ways and Means Committee, supported the bill during a panel vote last week and other Republicans from industrial states are expected to follow suit.
Many lawmakers may believe a tough stance on China could help them at the polls at a time when the U.S. unemployment rate stands at a painfully high 9.6%.