The US Congress last night increased pressure on the White House to enforce protectionist measures against Chinese imports after the Bush administration shown its apprehension to accuse Beijing of maneuvering its currency. Even though the half-yearly currency report by the US Treasury has employed its toughest language so far to condemn China for its undervalued exchange rate. However, the report also said there was no evidence that the yuan was being held down to secure an unreasonable advantage. After waited for a while, four leading Democratic and Republican senators have proposed legislation intended to punish China over its export practices. These congressmen also said that they would have the votes to pass it in Congress this year even if President Bush vetoed it.
The Senate proposal corresponds to a rejection of Treasury Secretary Henry Paulson’s hard work to force China to change through persuasion, not legislation. However, US Treasury Secretary Henry Paulson has resisted the Congressional proposal to accuse China of currency manipulation, while expressing disapproval America’s second-largest trading partner for an ‘undervalued’ yuan. The Treasury has stated in its semi-annual review of currency policies released this week, ‘the yuan is undervalued and market sentiment clearly favors appreciation.’ However, it further gone on to conclude that China did not match the technical definition of manipulation as the US could not settle on the objective to seek a trade advantage. 
The Treasury Secretary Henry Paulson has repeatedly said China needs to move more rapidly in the direction of a market-based currency, but, as a matter of fact, the department has never officially accused that China was liable of ‘manipulating’ its currency. The US manufacturers have been criticizing since long that the Chinese currency is intentionally undervalued to encourage Chinese exports. Moreover, from 1997 to 2005, China held the yuan’s value fixed in dollar terms. However, since it relaxed the link, the yuan has been appreciated around 8 percent.
The legislation has been designed to set up an extensive procedure to penalize China if it did not change its policy of prevailing in currency markets to hold the exchange value of the currency low. The proposed measure is planned to meet the terms with WTO rules, which stringently limit the kinds of penalties countries can use in commercial disputes. Interestingly, the bill is once again supported by Schumer and Lindsey Graham, who together proposed a more draconian measure last year that could have imposed excessive tariffs on Chinese imports. However there were ample chances that the decision could have been defeated at WTO. 
The last year’s bill had proposed y had a tougher version of the bill, which intended to increased tariff by 27 percent on Chinese goods if the authorities in Beijing did not raise the value of their currency. However, that proposed legislation was pulled out under pressure from the administration, and Schumer and Graham had acknowledged that its method for imposing duties on Chinese goods would have breached international trade rules. Nevertheless, supporting the latest bill, they have said that the new bill would lead to penalties while complying with the rules.
The strict tone of the latest Treasury report, however, suggested that the White House while coming under pressure is now intended to act in response to the growing resentment on Capitol Hill. The Bush administration has already given sign that it would resist the bill, which appeared definite to intensify tensions with China. In addition, protectionism has been strongly opposed by the Treasury secretary, Paulson, as he always favored dialogue with Beijing rather than confrontation. Speaking over the issue he has expressed support with the legislators’ intention but opposed their methods. Speaking to the press he explicitly said, ‘I happen to believe the most effective way to get movement and progress is through direct discussions and negotiations, not through legislation’.
It is widely understandable that that any pronouncement by the Treasury to mention China officially for currency manipulation would prompt a sell-off in global financial markets, on verge after the latest abrupt increase in bond yields.
