China currency bill advances in House

House Democrats moved legislation through committee on Friday that could lead to punishing tariffs on Chinese imports.

In a voice vote, the Ways and Means Committee approved legislation intended to pressure China to increase the value of its currency, which would raise the price of its exports to the U.S.

Labor unions, small manufacturers and Rust Belt Democrats have pressed the Democratic leadership for months to take up the legislation, arguing it could boost their party at the polls this fall.

The House is expected to consider the legislation on the floor next week, but it appears unlikely to move through the Senate before the election.

Republicans had generally opposed the legislation, but Ways and Means ranking Republican Dave Camp (Mich.) said Chairman Sandy Levin (Mich.) had made major changes that lessened the chance that the bill would violate World Trade Organization rules. 

"The substitute we're considering today is substantially modified and takes into account many of our concerns," Camp said. 

He said he did not believe enacting the legislation would solve the trade deficit with China and faulted President Obama and Democrats for not taking additional steps to increase exports. 

But he said it would send a signal to China that "it's time to see results."

Other Republicans said they still opposed the legislation. 

Rep. Kevin Brady (R-Texas) said the bill won't be effective and accused Democrats of rushing the bill for political purposes. He noted that some Democrats have suggested the bill could increase enthusiasm ahead of the election among Democratic voters. 

Levin responded that attacks on the bill would make it political. 

The Obama administration, like the Bush administration before it, has preferred to pressure China on currency through diplomatic channels. White House Chief of Staff Rahm Emanuel asked Sen. Charles Schumer (D-N.Y.) to hold back similar legislation in the Senate earlier this year.

Over the summer, China announced it would allow its currency to follow market trends, but the yuan has barely increased in value. Treasury Secretary Tim Geithner made some of his toughest remarks on the issue during panel hearings last week with the Ways and Means and Senate Banking Committees.

Still, there has always been a degree of theater to moves on China currency, and it is unclear whether the action in the House is a choreographed move by House leaders and the administration to send a message to China. Obama pressed Chinese Prime Minister Wen Jiabao to speed up the revaluation of his country’s currency during a meeting Thursday on the margins of the United Nations summit.

Business groups have warned that action by Congress on currency could trigger a trade war with China, which became the second largest economy in the world earlier this year.

The Currency Reform for Fair Trade Act would allow the Commerce Department to consider currency undervaluation resulting from government intervention when it assesses whether an import is benefiting from an export subsidy. This could allow Commerce to impose anti-subsidy duties on Chinese imports.

The U.S. trade deficit with China stood at $25.9 billion in July.

Chinese officials told state media this week that the appreciation of China’s currency would not solve the U.S. trade deficit.

The legislation as passed by Ways and Means was slightly modified from the bill sponsored by Reps. Tim Ryan (D-Ohio) and Tim Murphy (R-Pa.) to address concerns that it might violate international trade rules.

Anti-subsidy duties might only be assessed if Commerce finds that a government’s intervention in currency markets resulted in a financial contribution; that a benefit was conferred to the exporter; and that the subsidy in question is “contingent on export.”

This change is intended to prevent Commerce from dismissing a claim that a product is benefiting from a currency subsidy because that subsidy is available in circumstances in addition to export. For example, U.S. tourists who travel to China would also benefit from the Chinese government’s intervention in its currency.