Senate puts pressure on House, China by passing currency bill

The Senate approved legislation Tuesday that at once pressures China to allow its currency to appreciate more quickly, and forces House Republican leaders to consider how to handle the controversial yet popular bill.

The Senate approved legislation that could lead to higher tariffs on Chinese imports in a 63-35 vote, with 16 Republicans voting in favor of the bill.

Four Democrats and Independent Sen. Joe Lieberman (Conn.) voted against the measure.

{mosads}The vote poses an immediate quandary for House Republican leaders, who have so far dismissed the bill as a recipe for starting a trade war between the U.S. and China, just when the world is looking for the countries to work together to help maintain global economic growth.

It is also a headache for President Obama, who is cool to a bill that will complicate his administration’s work with China on an array of issues. Obama has also suggested that the bill, if passed, could run foul of international trade rules and lead to retaliatory tariffs on U.S. exports, hurting the businesses and workers the legislation is designed to protect.

The bill would require the U.S. to determine which countries’ currencies are misaligned, and impose compensating duties on imports from those countries if this misalignment is not corrected. While not specifically aimed at China, the bill is seen as an answer to what most agree is an undervalued Chinese currency that makes it harder for U.S. companies to compete against relatively less expensive Chinese goods.

House Speaker John Boehner (R-Ohio) has already called the bill a “pretty dangerous move” that ignores the progress China has made in allowing the yuan to appreciate. Boehner also warned that he’s not sure Congress should be dictating monetary policy moves to China.

Boehner’s comments are consistent with his 2010 vote against a similar bill, although 99 Republicans disagreed and helped pass that bill in a rout —  379-48. That vote shows House passage is possible if Republican leaders could be persuaded to schedule a vote.

While they are unlikely to be persuaded, one way around this hurdle is a discharge petition that would force a House vote.

As of last week, 175 Democrats and no Republicans had signed a petition to force a House vote. Still, that leaves supporters just 43 votes shy of the 218 names needed to force a vote, a number they could reach with support from Republicans.

As the campaign season enters high gear next year, Republicans could feel more pressure to force a vote, especially if the economy remains weak.

At the same time, a House vote would buck the trend of the last several years, which have seen various currency bills advance in either the House or Senate, but never in both at once. Last year’s House passage, for example, was met only by the introduction of a bill in the Democrat-led Senate that did not move, despite widespread support among Democrats.

The failure of Congress to move a bill in many ways reflects the gamesmanship aspect of the debate that has been present since Sens. Charles Schumer (D-N.Y.) and Lindsey Graham (R-S.C.) first introduced their version of a currency bill in the last decade. At the time, Schumer stressed that he would much prefer that Congress not approve his bill, and that China instead take the hint and allow the yuan to appreciate in value.

China eventually took the hint and allowed the yuan to slowly appreciate, but not at a pace Congress or the White House liked, which seems to have solidified support for congressional passage. Still, currency legislation has faced opposition from the Treasury Departments of both the Bush and Obama administrations, which has made Congress hesitant to force the issue.

Under both Hank Paulson and Tim Geithner, Treasury has argued that it much prefers to manage the issue with China. The implication is that passing the bill would inject significant uncertainty into the global economic situation by raising the price of U.S. imports and forcing the U.S. to cope with some form of retaliation from China.

At the same time, both the Bush and Obama administrations have used congressional pressure on China as a tool to slowly obtain the result of an appreciation of the yuan. This time around, the Obama administration said little publicly, and did not put out any statement of administration policy saying it opposes the bill, a change from its usual practice of alerting the House and Senate about its position on bills before they face a vote.

This has been part of Treasury’s management job for several years now — to parlay the congressional threat of passage into progress on China’s end. This year, as in others, China has reacted by allowing the yuan to appreciate more quickly — it jumped 0.6 percent earlier this week, the largest daily increase since China officially unpegged the yuan from the dollar in 2005.

Since that 2005 decision, the yuan has risen about 30 percent, close to the 40 percent undervaluation of the yuan that many supporters of legislation highlight.