US Senate passes bill to pressure China on yuan

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Media captionUS Secretary of State, Hilary Clinton, said the bill reflects the frustration felt by many Americans

The US Senate has voted through a bill that aims to aims to put pressure on China to increase the value of its currency, the yuan.

Some lawmakers argue that the Chinese yuan has been kept artificially undervalued, giving the country an unfair advantage and hitting US jobs.

The legislation passed the Democrat-led Senate 63-35, putting it through to the House of Representatives.

However, the bill is unlikely to be passed by the House.

Trade war

House Republican leaders agree with many business groups that action against China could result in a trade war.

The Obama administration has indicated it would prefer diplomacy.

China's foreign ministry said that the bill "obstructs China-US economic relations and trade".

China built up a $273bn trade surplus with the US last year. Critics say this is a result of China keeping its currency at an artificially low level, which makes China's exports to the US cheaper and imports from the US more expensive.

US lawmakers said the vote was a signal that it was time to confront China over its trade policies.

"There are always people who don't want to stand up to China and I think they are, frankly, undercutting our ability to stop the haemorrhaging in our manufacturing jobs," said Democrat Ohio Senator Sherrod Brown.

The bill is designed to put pressure on countries the US says are keeping their currencies deliberately undervalued.

If passed into law, it would allow Washington to impose so-called "countervailing duty" tariffs on imports that it sees as unfairly state-subsidised.

Most analysts say the Chinese yuan is undervalued against the US dollar by 25%-30%, with some US lawmakers putting the difference up to 40%.

There has been some appreciation of the yuan in the past year, but not enough to appease critics.

Damaging relations?

Recent comments in the Chinese media have shown fierce opposition to the bill, saying the trade imbalance between the two countries is a result of US economic policies and not the exchange rate.

"China calls on the US to discard protectionism, stop politicising economic issues and take concrete action to create an enabling environment for the development of bilateral economic relations and trade," said Ma Zhaoxu, a spokesperson for the foreign ministry, in a statement on Wednesday.

The Chinese foreign ministry also urged the Obama administration not to support the bill.

Many in the US are also worried that action against China would damage US-China relations.

House Speaker John Boehner has said it would be "dangerous" for Congress to get involved with a foreign country's exchange rate.

This sentiment puts the fate of the bill in question.

Secretary of State Hillary Clinton said to Reuters news agency: "I don't know whether this bill in the form that it's passing the Senate will ever end up as a piece of legislation coming from the Congress.

"But it does reflect a great deal of frustration on the part of the American people."