WASHINGTON — In advance of a critical U.S.-Sino summit here this week, Sen. Charles Schumer (D., N.Y.) and two Democratic senators unveiled legislation Monday that would target China’s undervalued currency and could lead to punitive tariffs on imports from China.

 

The senators said in a conference call with reporters Monday they were sending a strong message to Chinese President Hu Jintao to either revalue the yuan significantly, which many critics claim is undervalued by as much as 40 percent, or face punitive tariffs from the U.S. on Chinese imports.

 

“We are unveiling legislation that sends a clear message to Chinese President Hu Jintao,“ said Schumer, who was joined by co-sponsors Sens. Debbie Stabenow (D., Mich.) and Bob Casey (D., Pa.). “We are fed up with your government’s intransigence on currency manipulation. If you refuse to play by the same rules as everyone else, we will force you to do so.”

 

Schumer and other senators have been pressing China for six years with legislation to revalue its currency, which a broad swath of experts charge is deliberately undervalued and makes Chinese exports cheaper and puts U.S.-produced goods at a competitive disadvantage.

 

The House passed a bill in September that would give the Commerce Department greater leeway in investigating and cracking down on undervalued currency as an illegal export subsidy, which could lead to punitive tariffs on imports from China and other countries. But the legislation stalled in the Senate during the lame-duck session.

 

The Obama administration has followed the Bush administration policy of using diplomacy to pressure China into reforming monetary policy instead of declaring the country a currency manipulator, which could lead to sanctions against imports if it fails to devalue the yuan. China has only allowed the yuan to appreciate by about 3 percent since last June, which U.S. lawmakers argue is not enough.

 

Both sides have ratcheted up the tension and rhetoric in advance of Hu’s official state visit at the White House on Wednesday.

 

Treasury Secretary Timothy Geithner criticized China last week for undervaluing its currency and moving too slowly on allowing the yuan to appreciate.

 

Ahead of his visit, Hu defended China’s monetary and exchange rate policies, which many U.S. officials have charged is fueling inflation in China, in written responses to The Washington Post and Wall Street Journal, published Monday.

 

“We have adopted a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies,” Hu said. “Changes in exchange rate are a result of multiple factors, including the balance of international payment and market supply and demand. In this sense, inflation can hardly be the main factor in determining the exchange rate policy.”

 

The senators did not release details about the legislation on Monday, which they said is an amalgam of two past, separate Senate bills.

 

Schumer said the bill would require Treasury to investigate whether China is manipulating its currency and take action where it is warranted. The bill aims to make it more difficult for Treasury to avoid labeling China a currency manipulator. If Treasury declares China a currency manipulator and China refuses to take action to raise the value of its yuan during consultations, it could lead to sanctions in the form of higher tariffs on Chinese imports.

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