By  on October 12, 2011

WASHINGTON — The Senate passed legislation Tuesday night that could ultimately lead to punitive tariffs on Chinese imports if the country fails to reform its monetary policy, ratchetting up the pressure on China, which has warned it could start a trade war.

On a bipartisan vote of 63 to 35, Senate Democrats, including Sen. Charles Schumer (D., N.Y.), a chief co-sponsor of the bill who has been pressing for punitive legislation against China’s undervalued currency for six years, sent a strong message to Beijing and increased the pressure on the House to take up the measure.

“China undervalues its currency to give its own exports an unwarranted advantage in the global marketplace,” said Senate Majority Leader Harry Reid (D., Nev.) before the vote. “This costs American jobs by unjustly tilting the playing field against American manufacturers. Tonight we have the opportunity to stop China from continuing to cheat American workers, pump $300 billion into our economy and support 1.6 million jobs.”

Despite the strong bipartisan support in the Senate, the bill’s prospects in the House remain uncertain. House Majority Leader Eric Cantor (R., Va.) on Tuesday said he was waiting for the White House to formally state its position on the bill, but Cantor gave no indication on where he stands on the legislation. His remarks followed a warning from House Speaker John Boehner (R.,Ohio) last Wednesday that the legislation was “dangerous.”

President Obama has not taken a position on the measure. He said last week that while China intervenes in currency markets to the disadvantage of U.S. companies, he has concerns and that any bill the U.S. enacts must comply with international trade laws to avoid a trade battle with China.

The legislation has implications for the fashion industry. Domestic textile groups, part of a broader coalition of 49 industry organizations known as the Fair Currency Coalition, support the legislation because it gives individual companies a chance to petition the Commerce Department for the imposition of countervailing duties on Chinese imports based on an undervalued currency. But apparel importer associations are opposed to the bill, arguing it will lead to retaliation from China against their apparel exports and other consumer products because it does not comply with World Trade Organization rules.

The bill’s central component would direct the Commerce Department to treat undervalued currency as an illegal export subsidy under U.S. trade laws, which could lead to punitive import tariffs on imports from China and other countries. It would make it easier for industries to petition Commerce for relief under claims that a misaligned currency is an illegal export subsidy. The legislation would also require the Treasury Department to identify countries that “fundamentally misalign” their currencies and take action if they fail to correct it. Under current law, the Treasury must identify countries that “manipulate” their currency for purposes of gaining an unfair trade advantage and show intent.

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