The bill, which faces an uphill battle from both the Republican-controlled House and a reluctant White House, would require the Treasury Department to determine whether China is manipulating its currency, and then order the Commerce Department to impose retaliatory tariffs on certain Chinese goods.
China intervenes in currency markets to keep the value of its currency, the renminbi, artificially low, which makes Chinese goods cheaper in the United States — a practice that lawmakers and some economists say undercuts American businesses and worsens the nation’s jobless rate.
“Trade has helped us export our values of a free democratic society,” said Senator Jeff Sessions, Republican of Alabama and one of the bill’s co-sponsors, “but like democracy itself, trade must operate under a set of rules and values.”
The measure, which goes further than a similar version that passed the Democratic-controlled House last year, cleared an initial procedural hurdle in the Senate on a 79-19 vote, with 16 Republicans and three Democrats opposed. It faces more debate before a final vote. The legislation would require the Treasury to use a lower standard for determining whether China’s currency was misaligned, prompting higher duties on Chinese imports. The Obama administration has pushed China to let its currency rise in value, but has stopped short of labeling it a manipulator.
While the debate over China’s currency is several years old, it has taken on new urgency amid a three-way race among the White House, House and Senate to write legislation to revive the job market. Senate Democrats, like Charles E. Schumer of New York, have chosen trade, a populist issue, while working behind the scenes to find a way to make President Obama’s jobs bill, which includes tax increases, more palatable to their members.
“This is a jobs bill because it is about American competitiveness,” said Senator Debbie Stabenow, Democrat of Michigan, another co-sponsor. Noting that auto suppliers have lost bids to Chinese companies because of the currency, she said leveling the playing field would create 1.6 million American jobs.
But while the Chinese currency measure enjoys Republican support in the Senate, it is viewed less favorably in the House, where Representative Dave Camp, the Michigan Republican who is chairman of the Ways and Means Committee, is expected to offer his own less aggressive version later this year. Some lawmakers fear that the measure would cause a trade war at a time when China has moved slowly to increase the value of its currency.
Representative Eric Cantor, Republican of Virginia and the House majority leader, said the bill could have “unintended consequences,” contributing perhaps to an increase in consumer prices.
The measure also puts the White House, which has recorded only limited success in lobbying China, in a tough spot. The press secretary, Jay Carney, said China’s currency had not gone up enough, but added, “We need to make sure that if we are pursuing this goal, a goal that we share with members of Congress, we need to do it in a way that’s consistent with our international obligations and is effective.”
The vote drew criticism from some lawmakers who said that at a time of economic crisis, the Senate had gotten its priorities wrong.
Similar criticisms came from some in the business community, who said that punishing China would not create more jobs at home, and would distract attention from more urgent issues, like lack of market access.
“Much of what we import from China is stuff we imported from somewhere else before that,” said John Frisbie, president of the U.S.-China Business Council, who noted that as costs rise in China, companies would simply move their factories to even cheaper countries. “If this is a jobs bill, it is a jobs bill for Vietnam.”
The renminbi has risen about 6 percent against the dollar since China loosened its peg in June 2010. Economists estimate it is still undervalued by 25 percent relative to the dollar. That disparity has spiked in recent weeks, as the dollar has risen, after a prolonged period of decline, because of the debt crisis in Europe.
China continues to run yawning trade surpluses with the United States: $273 billion in 2010, compared with $83 billion a decade earlier. But China’s trade surplus has declined, as a percentage of its overall economy, since 2007 — a trend that Chinese officials cite to argue that it is gradually moving to a market exchange rate.
“They say they’re on a glide path to currency equilibrium,” said Nicholas R. Lardy, an expert in the Chinese economy at the Peterson Institute for International Economics. With growth slowing in China, Mr. Lardy said it was highly unlikely that Beijing would risk anything that would slow its export engine.
Over time, tensions between the United States and China have shifted from the exchange rate to other issues, like intellectual property rights and measures that bar American companies from access to the Chinese market. Worries about currency have also waned as American corporations have established their own factories in China, enabling them to benefit from its cheap currency.
In a new survey of its members, the U.S.-China Business Council found that exchange rates ranked 27th on a list of concerns.
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