The U.S. House of Representatives passed legislation on Wednesday aimed at putting pressure on China to let its currency rise faster, fanning the flames of a long-running dispute over trade and jobs.

The bill, passed 348-79 with heavy support from Democrats but Republicans more divided, treats China's exchange rate as a subsidy. That would open the door to extra duties on Chinese goods entering the United States, some of which are already subject to special levies.

The measure could play well in the U.S. congressional election on November 2, with voters worried about their jobs and a sluggish economy. But it must win Senate approval and be signed into law by President Barack Obama -- by no means a sure bet.

The Obama administration has not taken a stance on the bill and may hope just the threat spurs more movement from China.

Before the House vote, China's central bank reaffirmed its pledge to increase the flexibility of the yuan and improve the way it manages the exchange rate.

U.S. lawmakers have long brandished the sword of trade retaliation for what they see as China's policy of undervaluing the yuan to give its exports an unfair advantage. But they have never sent the president any legislation to sign into law.

"We have a major problem and action is necessary," said Sander Levin, the Democratic chairman of the House Ways and Means Committee.

Obama and Chinese Premier Wen Jiabao talked about China's currency and huge trade surplus with the United States on the sidelines of the U.N. General Assembly last week.

"The reason that I'm pushing China about their currency is because their currency is undervalued," Obama said on Wednesday. "That's not the main reason for our trade imbalance but it's a contributing factor."

Despite the yuan's modest gains against the dollar since Beijing allowed more movement in June, International Monetary Fund economists estimate the yuan is 5-27 percent undervalued.


China's tight leash on the yuan is under intense scrutiny as countries around the world look to export their way back to economic health, raising concerns they will intentionally weaken their currencies to gain an edge.

Japan intervened this month to weaken the yen for the first time in six years. Some emerging economies have done the same.

Brazil's finance minister warned this week of a global "currency war." The Brazilian currency, the real, hit its highest mark since December on Wednesday, threatening exports.

The U.S. dollar has shed 11 percent against a basket of currencies since early June as the Federal Reserve considers printing more money to prop up a sluggish economic recovery.

China's ambassador to the World Trade Organization, Sun Zhenyu, criticized U.S. policy for weakening the dollar despite its key role in the global financial system.

"We are very much concerned about how the U.S. would take practical and responsible measures to prevent the dollar glut and maintain the stability of the currency," Sun said.

The House move is certain to further roil relations with Beijing, which resents the criticism and says the decision about the speed of currency reforms is its alone.

China, the largest foreign buyer of U.S. government debt with holdings of nearly $847 billion as of July, also says its big trade surplus with the United States is due to Americans saving too little and no longer making the goods China sells.

While Obama has not taken a position on the legislation, House Majority Leader Steny Hoyer said lawmakers worked with the White House to ensure the bill did not violate WTO rules.

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, the yuan has hit its highest level against the dollar in more than five years but, at just over 2 percent, the gain is far short of what U.S. lawmakers want.

U.S. Treasury Secretary Timothy Geithner told Congress two weeks ago that Washington would work with Group of 20 nations to push China for faster appreciation but several allies expressed reluctance to join the effort.

G20 leaders are set to meet in Seoul on November 10-11. That would give U.S. senators time to gauge any further moves by China before deciding what to do, with supporters pushing for a vote on the bill after the November 2 election.


The House bill allows the Commerce Department to treat "fundamentally undervalued currencies" as an illegal export subsidy so that U.S. companies can request a countervailing duty to offset China's price advantage.

That is expected to encourage steel, paper and other import-sensitive U.S. industries to file more cases. The United States now has countervailing duties on less than 3 percent of its imports from China, which totaled $296 billion in 2009.

Some economists said they understood the politics of the debate but questioned whether the bill would bring back American jobs or prod China to move faster on currency reform.

"We consume a lot. The Chinese save a lot. We're going to run a trade imbalance with them," said Derek Scissors of the Heritage Foundation.

Paul J. Markowski of Global Strategies-Analysis Group/MES Advisers, noting that many millions of Chinese are employed in low-margin export firms, said "China's quest for social stability trumps whatever market discipline would suggest."

China and the United States have a difficult but vital diplomatic relationship, not least in dealing with nuclear threats from Iran and North Korea.

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.