The House on Wednesday fired a warning shot at China by passing a bill with strong bipartisan support that would raise tariffs on Chinese imports if the Asian giant keeps an artificial lid on its currency.
Republicans from industrial states joined most Democrats in giving new powers to the Commerce Department to consider whether China’s policy of tying the value of its currency to the dollar, rather than allowing it to rise in response to market forces, represents an unfair trade practice.
The vote was 348-79, with all but five Democrats and 74 Republicans voting in favor.
“Talk doesn’t work,” said House Ways and Means Committee Chairman Sander M. Levin, rejecting protests from the Obama administration — like the Bush administration before it — that the best way to persuade China to abandon its practices is to use quiet diplomacy in international forums.
China promised to loosen its currency restrictions this past spring in response to international pressures, but the Chinese yuan or renminbi has risen by less than 2 percent since then. Economists estimate that it is undervalued by as much as 40 percent.
“A 25 percent to 40 percent tilt against us is unacceptable,” said Mr. Levin, Michigan Democrat. “This bill says we cannot and will not look the other way. We are going to act.”
Mr. Levin, in drafting the committee bill, diluted an earlier version of the legislation that would have imposed across-the-board tariffs on Chinese goods if it keeps fixing its exchange rate. Instead, the bill allows the administration to make case-by-case determinations in connection with complaints against classes of Chinese imports raised by trade unions and manufacturers.
Mr. Levin said the bill was also carefully drafted to ensure it complies with U.S. trade obligations so it will not be struck down by the World Trade Organization.
Nevertheless, opponents said the bill will do little to change China’s exchange policies, while it could provoke dangerous retaliatory action against U.S. businesses and exports. China is the fastest-growing U.S. export market.
“This will likely result in retaliatory action by the Chinese,” said Rep. Jeff Flake, Arizona Republican, lamenting that it was the only trade measure to be brought to the House floor in two years since Barack Obama was elected as president.
“We’re into the crazy season where we’re simply pandering instead of helping to open new markets,” he said.
A few other conservative Republicans echoed his concerns, though nearly all agreed with bill sponsors that China is not allowing market forces to determine the value of its currency.
Analysts said that while the bill may be primarily a vehicle for legislators to cater to public sentiment in favor of taking a tough stance against China, it risks touching off a trade battle with the Asian giant.
“It’s politics,” said Raghav Subbarao, an analyst with Barclays Capital. “Bear in mind that so close to the midterm elections, legislation is less likely to be driven by policy considerations and more by populism.”
Still, the strong vote for the bill in the House “raises the risk that some form of the legislation, albeit a watered-down version, will be passed ahead of the elections, raising the prospect of a conflict with China,” he said.
The legislation also is popular in the Senate, where sponsors say they may push for a vote after the Nov. 2 elections.
“For so many years we have watched China’s trade deficit grow and grow and grow, and today we’re finally doing something about it,” said House Speaker Nancy Pelosi, California Democrat. “We’re recognizing that currency manipulation is a way of subsidizing exports.”
Mrs. Pelosi said fear of offending China has prevented Congress from acting on the issue for years.
“We understand the U.S.-China relationship is an important one in every way — culturally, politically, diplomatically, economically, commercially. But we need to have them play by the rules,” she said.
“We do this because 1 million American jobs could be created if the Chinese government took its thumb off the scales.”
Republicans, who have fought nearly every other Democratic initiative this year, said they were glad to finally get a chance to vote on the currency measure after futilely waiting for years for China to act on its own.
“The bill sends a signal to China that Congress’ patience is wearing out,” said Rep. Dave Camp, Michigan Republican, noting that he was drawn to the bill because it was drafted to comply with WTO rules. “We cannot allow ourselves to be afraid of China’s reaction.”
Treasury Secretary Timothy F. Geithner earlier this month expressed concern that the legislation must comply with trade rules. But the Treasury and White House were silent and gave no opinion on the bill that passed Wednesday.
Mr. Obama endorsed at least the sentiments behind the legislation on Wednesday, after having discussed the currency issue privately last week with Chinese Premier Wen Jiabao on the sidelines of the U.N. General Assembly.
“The reason that I’m pushing China about their currency is because their currency is undervalued,” he said at a backyard meeting with voters in Iowa. “That’s not the main reason for our trade imbalance, but it’s a contributing factor.”