Is China playing fair?

Treasury Secretary Timothy Geithner testifies Thursday on Capitol Hill before a Senate Banking Committee on the Treasury Department’s report on international economic and exchange rate policies

WASHINGTON -- Congress is pressuring the Obama administration to take a tougher stand with China over trade practices that they say have cost Americans millions of jobs.

Democrats and Republicans on committees in the Senate and House told Treasury Secretary Timothy Geithner on Thursday that China is manipulating its currency. They said that and other practices have led to a huge trade gap between the two countries and job losses in the United States.

Geithner said the administration was ready to work with Congress on an effective strategy. But he cautioned that the government should not take any action that would wind up hurting U.S. companies and businesses by triggering retaliation by China, an important trading partner.

Members of the Senate Banking Committee said they were frustrated because the administration failed to cite China as a currency manipulator in its latest report. Instead, the White House took the same position as previous administrations in simply urging China to move faster to allow its currency to rise in value against the dollar.

American manufacturers contend that the Chinese currency is undervalued by as much as 40 percent. That has given Chinese companies a tremendous competitive advantage -- making U.S. products more expensive in China and Chinese goods cheaper in the United States.

Under a 1988 law, the Treasury Department is required to submit a currency report to Congress every six months and cite any country that it finds is manipulating its currency to gain trade advantages.

"At a time when the U.S. economy is trying to pick itself up off the ground, China's currency manipulation is like a boot to the throat of our recovery," Sen. Charles Schumer, D-N.Y., said.

Committee Chairman Christopher Dodd, D-Conn., and Sen. Richard Shelby of Alabama, the top Republican on the panel, said they had grown frustrated listening to a string of administrations refuse to cite China as a currency manipulator.

"The American public is tired of hearing about the sophisticated nuances of international diplomacy," Shelby said. "They want the administration to fulfill its promise of balanced international trade."

Geithner said the administration was willing to work with Congress to toughen the law. But he stopped short of endorsing two bills that would give the administration more power to sanction China on the currency issue.

Supporters are pushing for a vote before the November elections on a House bill sponsored by 143 members. The legislation would expand the definition of illegal government subsidies to include government currency manipulation. That would open the door to U.S. trade sanctions against Chinese products.

Geithner said the administration was taking a "careful look" at the House bill. It wanted to determine whether it was consistent with America's World Trade Organization obligations and whether it would produce the desired results of pushing China to stop undervaluing its currency.

During the marathon hearings Thursday, Geithner told both committees that the key point was for China to understand the growing frustration in the United States.

China has made some changes. Starting last week, its central bank has allowed the currency, the yuan, to rise more in value against the dollar. That followed an announcement in June that it would allow more flexibility in the currency.

Still, Geithner said those changes have had little impact. The currency has risen by only 1.5 percent against the dollar in the past three months, he said. He did not indicate whether the administration might cite China in the next currency report, due Oct. 15. But he stressed that the administration was looking for more movement than it has seen so far.

Geithner's comments were part of the administration's tougher tact with China over trade ahead of the U.S. midterm elections. The weak economy and high unemployment have emerged as the top issues with American voters.

On Wednesday, the administration announced it was filing two new trade cases against China before the WTO. One of the cases contends that China violated trade rules by imposing penalty tariffs on U.S.-made specialty steel products. The other alleges that China is discriminating against U.S. credit card companies in favor of a state-owned financial services firm.

In Beijing, Chinese Foreign Ministry spokeswoman Jiang Yu on Thursday rejected the administration's tougher language on the yuan, saying appreciation of the currency "can't solve the trade deficit with China."

Up until now, the Obama administration had followed the same practice as the Bush administration, choosing to emphasize quiet diplomacy to get China to move more quickly to allow its currency to appreciate in value.

Officials in both administrations had been concerned that increasing public pressure could trigger a backlash in China and result in Beijing retaliating against U.S. exports. But Geithner's comments Thursday indicated the current administration might be willing to try a tougher approach.