US Congress committee approves China sanctions bill

Representative Sander Levin, chairman of the House Ways and Means committee
Image caption Committee chairman Levin said the decision was about American jobs

A US Congress committee has approved a bill that would place retaliatory trade sanctions on China.

It means the House of Representatives - the lower chamber of Congress - will vote on the bill next week.

The bill would allow the US to impose import duties on countries who have fundamentally undervalued currencies.

To become law, the bill would also need support in the Senate, which is less certain ahead of mid-term Congressional elections due in November.

The US accuses China of holding down the value of its currency, the yuan, in order to give its exports an unfair price advantage.

"China's persistent manipulation is a major distortion in the international marketplace," said Sander Levin, chairman of the House Ways and Means committee.

"[The yuan] has a major impact on American workers and therefore American jobs. That's what this is really all about."

The draft legislation would require the US Commerce Department to determine the extent to which a currency is undervalued in any case of unfair trade practices brought to it.

In August, the department decided to drop a more general investigation into the value of the yuan, despite deciding that China had unfairly subsidised its aluminium exporters.

Trade imbalances

The Congressional committee's decision comes a day after US President Barack Obama spent most of a two-hour meeting with Chinese premier Wen Jiabao in New York pressing for a stronger yuan.

China has begun recording increasingly larger trade surpluses again since the global recession ended last year.

The US has similarly slipped back into trade deficits, despite weak growth and near-10% unemployment.

Under pressure from the US, China has already abandoned a fixed exchange rate to the dollar in June.

However, the exchange rate to the dollar is controlled by the People's Bank of China, which sets a daily rate, and since abandoning the peg, Beijing has only allowed the yuan to appreciate 1.9%.

Treasury Secretary Tim Geithner told Congress last week that he thought the Chinese currency was significantly undervalued, and was looking at what tools the administration could use to change China's stance.

But Mr Geithner has previously refused to designate China a "currency manipulator" - a formal designation that would open the way to trade sanctions.