U.S. industry, lawmakers urge action on China's yuan

WASHINGTON (Reuters) - The U.S. steel industry, Ohio lawmakers and two veteran U.S. trade policy experts urged Congress on Wednesday to pass legislation to push back against China's "undervalued" currency by slapping duties on Chinese imports that threaten American jobs.

A bill in the House of Representatives instructs the Commerce Department to apply anti-dumping and countervailing duties against injurious imports from countries that persistently undervalue their currencies. A separate bill in the Senate would give the White House discretion to avoid taking action.

The issue has heated up ahead of U.S. congressional elections on November 2 as voter dissatisfaction with Congress and high U.S. unemployment has Democrats in fear that they might lose control of the House and possibly the Senate.

And while U.S. lawmakers have pushed unsuccessfully for legislation to pressure China on currency in the past, political analysts say they cannot rule out action before the congressional elections in November.

"We as a nation, as a Congress cannot continue to look the other way as China's currency policies slowly but steadily smother what remains of our American manufacturing," Representative Tim Ryan, an Ohio Democrat, said in prepared remarks to a congressional panel on Wednesday.

"It is time for us to act," Ryan told the House of Representatives Ways and Means Committee as he pressed for action on a bill targeting China's currency exchange rate practices that has 133 co-sponsors.

The United States and Europe have long pressed China to let the yuan rise against the U.S. dollar, although the White House has banked on quiet diplomacy to achieve that goal.

Treasury Secretary Timothy Geithner will present the Obama administration's view in testimony before the House panel and the Senate Banking Committee on Thursday.

A generally united front from the Group of Seven rich nations that free markets should determine currency values was broken on Wednesday when Japan intervened for the first time in six years in an effort to weaken the yen.

In what many analysts see as at least in part a response to growing U.S. pressure, China has let the pace of the yuan's appreciation against the dollar quicken in recent days.

The currency has scored its fastest rise in five trading days since February 2008, but it still up only 1.25 percent since Beijing broke a yuan-dollar peg in June.

BIG MENU OF BILATERAL DISPUTES

Currency policy is just one of a host of disputes between the world's two biggest economies.

This year, Washington and Beijing have bickered over trade barriers, U.S. arms sales to Taiwan and sympathy for Tibet's Dalai Lama, military navigation rights in seas near China.

China's close ties with Iran and North Korea remain an irritant, but Beijing has cooperated with U.N. efforts to curb the nuclear ambitions of Tehran and Pyongyang.

Last week, U.S. National Economic Council Director Larry Summers and Deputy National Security Adviser Thomas Donilon said after meeting top Chinese leaders that China wants to avoid shouting matches in favor of quiet talk to quell tensions.

Chinese economist Fan Gang, a former adviser to China's central bank, told Reuters that significant yuan appreciation would more likely help Vietnam and Bangladesh than cure unemployment in the United States.

"Even if China had appreciated 20 percent or 30 percent overnight, and then after several months jobs had not come back to the U.S., the Congress would have complained again," he said on Wednesday.

But Leo Gerard, president of the United Steelworkers union, and Dan DiMicco, chief executive officer of Nucor Corp and a board member of the American Iron and Steel Institute, told the House panel the need for action was urgent.

"We have been waiting and seeing and talking and dithering for far too long. We are in a trade war and we are losing," Gerard told the panel. "The time for talk is over."

However, not every witness set to testify on Wednesday agreed swift action was needed.

Representative Lynn Jenkins, whose home state of Kansas depends heavily on farm exports to China, said the huge U.S. budget deficit was partly to blame for creating a situation where China could buy massive amounts of U.S. government securities to hold down the value of its yuan.

"Many proposals beyond reducing federal deficits could hamper agriculture markets, raise prices for U.S. manufactures and further threaten U.S. jobs," Jenkins said.

SOME FAVOR MULTILATERAL APPROACH

Ira Shapiro, a former U.S. trade official, said he was "skeptical" that applying trade duties against countries with undervalued currency would pass muster under global trade rules.

A better approach would be for the United States to launch talks at the Group of 20 summit in Seoul in November "to rebalance the leading currencies" over the next two to three years, Shapiro said.

But the United States should also consider filing a first-of-its-kind case at the World Trade Organization against China's currency practices if it becomes clear over the next several months that Beijing is not serious about reform, he said.

John Frisbie, president of the U.S.-China Business Council, also urged caution, agreeing with Jenkins that passing legislation could backfire on U.S. exporters.

But Fred Bergsten, president of the Peterson Institute of International Economics, advocated a tougher approach, calling for passage of the Ryan bill and for the Treasury Department to formally label China a "currency manipulator" in a semi-annual report next due on October 15.

He also called on the Obama administration to initiate a new strategy of "countervailing currency intervention" against Chinese purchase of U.S. dollars by making offsetting purchases of Chinese yuan or market proxies such as yuan-denominated bonds. While technically challenging, this would show the seriousness of U.S. concerns, Bergsten said.

(Reporting by Doug Palmer and Paul Eckert; Editing by Eddie Evans)