By Doug Palmer and Paul Eckert
WASHINGTON (Reuters) - U.S. industry and senior Democrats ratcheted up pressure on Congress on Wednesday for a tough new trade law to punish China for what they see as an undervalued currency that threatens American jobs and profits.
The chorus of complaints is part of a renewed drive for a bill that would slap duties on Chinese imports to force Beijing to let its yuan currency rise, an election-year bid by U.S. lawmakers to show voters they are serious about reviving the struggling economy.
While congressional efforts to pressure China over its currency have yielded little in the past, U.S. anger over the issue is now so strong that political analysts are not ruling out action before the November 2 congressional elections.
But Beijing could counter with measures of its own, dealing a blow to President Barack Obama's efforts to ease U.S.-China tensions on a range of economic and foreign policy disputes.
"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, a Democrat from the hard-hit state of Ohio, told a congressional panel on Wednesday.
"It is time for us to act," Ryan told the House of Representatives Ways and Means Committee as he pushed for broad support for a bill targeting China's exchange rate practices that has 133 co-sponsors in the 435-seat House.
The House bill would instruct 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.
BIG MENU OF DISPUTES
China has let the pace of the yuan's appreciation against the dollar quicken in recent days, which many analysts see as a response -- at least in part -- to growing U.S. pressure.
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.
Some U.S. economists say threatening tariffs to get China to revalue its currency will not work.
"Every step in the protectionist argument -- we know how much the yuan is undervalued, undervaluation drives the trade deficit much higher and it costs the U.S. millions of jobs -- turns out to be partly or completely wrong," said Derek Scissors, trade expert at the Heritage Foundation.
"The better course for the U.S. is to make free movement of money in and out of China the highest priority."
Currency policy is just one dispute 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 Tibetan spiritual leader the Dalai Lama and 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 favors quiet talk over shouting matches to ease tensions.
Sander Levin, chairman of the House Ways and Means Committee, said he wants to enlist other countries to pressure China to raise the value of the yuan but he also endorsed the use of duties against Beijing's currency practices.
"I believe a multilateral approach would be the most likely to yield the broadest results," he said. "Many nations are harmed by mercantilist exchange rate policies, not only the United States."
Although the currency bill enjoys bipartisan sponsorship, not all Republicans are on board.
"The legislation being discussed today ... is not the best way forward," said Dave Camp, the senior Republican on the House committee.
The bill might violate World Trade Organization rules, draw legal retaliation against U.S. businesses and shut down trade in inputs from China that U.S. industry needs, said Camp, who represents the troubled industrial state of Michigan.
Representative Lynn Jenkins, a Republican 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 debt 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.
"SEEING AND TALKING AND DITHERING"
The United States and Europe have long pressed China to let the yuan rise against the dollar, although the White House has banked on quiet diplomacy to achieve that goal.
U.S. 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.
The need for action against China is urgent, two members of the U.S. steel industry -- Leo Gerard, president of the United Steelworkers union, and Dan DiMicco, chief executive officer of Nucor Corp -- told the House panel.
"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."
Ira Shapiro, a former U.S. trade official, said a better approach than duties would be the United States launching talks at the Group of 20 summit in Seoul in November "to rebalance the leading currencies" over the next two to three years.
But the United States should also consider filing a first-of-its-kind case at the WTO 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 on the panel that passing legislation could backfire on U.S. exporters.
"The goal has to be for China's exchange rate to show more movement. Frustrations are high but legislation will not help us reach the goal," Frisbie said.
But Fred Bergsten, president of the Peterson Institute of International Economics, advocated a tougher approach, calling for passage of the House bill and for the Treasury Department to formally label China a "currency manipulator" in a semi-annual report next due on October 15.
(Reporting by Doug Palmer and Paul Eckert; Writing by Matt Spetalnick; Editing by Eddie Evans and John O'Callaghan)
