US lawmakers frustrated over the mounting trade deficit with China will be looking for concrete action this week when the Bush administration hosts Chinese officials for high-level talks.
With little to show after four years of US pressure on China to revalue its yuan currency, lawmakers in both the House of Representatives and the Senate are crafting bills aimed at forcing the administration to take a stronger stand on the issue and giving it the tools to do that.
"I'm pretty sure there will be legislation. The only question is what it would look like," said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers.
On Friday, China's central bank announced the yuan would be allowed to rise or fall 0.5 percent each day against the dollar, up from a 0.3-percent trading band put in place in July 2005, when China revalued the yuan and depegged it from the dollar.
US Treasury officials welcomed the move, which came just days before a high-level Chinese delegation led by Vice Premier Wu Yi visits Washington for economic talks on May 22-23.
But a senior House Democrat said he was unimpressed. "Raising it from a limit that isn't being reached now to
one that is higher isn't significant," said House Trade Subcommittee Chairman Sander Levin of Michigan. "We need to see concrete action. We need to see meaningful movement."
Lawmakers believe as do many economists, that the yuan is undervalued by as much as 40 percent, giving Chinese companies an unfair trade advantage that has helped push the US trade deficit with China to a record $233 billion last year.
Rather than merely widen its restricted currency trading band, China needs to substantially raise the value of yuan against the dollar, said Charles Blum, a member of the China Currency Coalition, a joint US industry and labour group.
"We've never, ever objected to the peg. We've always objected to the value," Blum said. Since China revalued the yuan by 2.1 percent and dropped the dollar peg in July 2005, the currency has only risen an additional 5.76 percent in value.
The Senate's most vocal China critics-Sen. Charles Schumer, a New York Democrat, and Sen. Lindsey Graham, a South Carolina Republican-have teamed up with Senate Finance Committee Chairman Max Baucus, a Montana Democrat, and Sen. Charles Grassley, an Iowa Republican, to write a bill.
Levin and other House Democrats have also said they expect to move legislation this year. "We're taking a hard look at that. We're going to take a further look next week," Levin said.
One likely candidate is a bill that would make it easier for the US Commerce Department to impose new tariffs on Chinese goods under a countervailing duty law against foreign government subsidies.
A more controversial, but popular option in both the House and the Senate is to go even further and define currency manipulation as a subsidy under US trade law.
Lawmakers are also looking at language to make a semi-annual US Treasury Department report on foreign currency practices a stronger tool against China.
Current law requires Treasury to determine if a country is manipulating its currency to gain an unfair trade edge, and begin negotiations bilaterally and through the International Monetary Fund with any country that does.
Over the strong objections of US lawmakers, the Treasury Department regularly has avoided labelling China as a currency manipulator by saying it does not believe the intent of China's currency practice is gain an unfair footing in global markets.
Last year, Baucus and Grassley proposed language that would allow Treasury to determine whether a currency is "fundamentally misaligned" rather than slapping a stigma like "currency manipulator" on a trading partner. That is still an option for lawmakers, but another idea is to reduce Treasury's manoeuvring room and simply require it to determine whether a country is manipulating its currency, regardless of whether it is doing so to gain an advantage.
Meanwhile, US officials are expected to press China to beef up its copyright and patent protections because of piracy and counterfeiting that costs US manufacturers billions of dollars in lost sales each year.
Bush administration officials believe US exports to China, which grew 32 percent in 2006 to $55.2 billion-would be at least tens of billions of dollars higher each year if Beijing were to eliminate trade barriers in sectors ranging from pharmaceuticals to telecommunications to movies.