msnbc.com news services
updated 10/4/2011 8:53:01 AM ET 2011-10-04T12:53:01

China warned Washington it is adamantly opposed to a proposed U.S. bill aimed at forcing Beijing to let its currency rise, saying its passage could lead to a trade war between the world's top two economies.

In a coordinated response, the Chinese central bank and the ministries of commerce and foreign affairs accused Washington of "politicizing" global currency issues.

The bill to be debated in the United States this week violates World Trade Organization rules and forcing the yuan to appreciate would weaken joint efforts to revive the global economy, the foreign ministry said.

"By using the excuse of a so-called 'currency imbalance', this will escalate the exchange rate issue, adopting a protectionist measure that gravely violates WTO rules and seriously upsets Sino-U.S. trade and economic relations," foreign ministry spokesman Ma Zhaoxu said in a statement posted on China's official government website on Tuesday. "China expresses its adamant opposition to this."

U.S. senators voted on Monday to open a week of debate on the Currency Exchange Rate Oversight Reform Act of 2011, which would allow the U.S. government to slap countervailing duties on products from countries found to be subsidizing their exports by undervaluing their currencies.

Video: Is a China Trade War Brewing? (on this page)

U.S. lawmakers, eyeing 2012 elections, said the undervaluing of China's currency had cost American jobs and that a fairer exchange rate would help cut an annual trade gap of $250 billion.

A top U.S. official said Tuesday the Obama administration has begun discussions with the Senate about whether a bill aimed at forcing China to let its currency rise is "the right approach."

Acting U.S. Commerce Secretary Rebecca Blank told CNBC that the best solution to what American officials view as an undervalued Chinese currency remains "an open question." 

"The administration is talking with people in the Senate about whether this bill is the right approach or whether there are other approaches to take," she said. "Those conversations are under way."

Supporters of the bill say that the value of the yuan is still as much as 40 percent below what it should be, keeping the prices of Chinese goods artificially low and U.S. products excessively high. They say that's a major factor in a trade deficit with China that hit $273 billion last year.

Gradual reform
Ma urged U.S. legislators to "proceed from the broader picture of Sino-U.S. trade and economic cooperation" and "forsake protectionism."

He repeated Beijing's position that it will continue to gradually reform its currency policy, "strengthening the flexibility of the renminbi exchange rate."

Monday's vote bolsters prospects for the bill to clear the Senate later this week, but prospects for action in the House of Representatives are murky.

Slideshow: The dance of two giants (on this page)

If the bill did clear both chambers, it would present President Barack Obama with a tough decision on whether to sign the popular legislation into law and risk a trade war with Beijing, or veto it to pursue a more diplomatic approach.

"My colleagues, both Democrats and Republicans, agree that China's deliberate actions to devalue its currency give its goods an unfair competitive advantage in the marketplace," said Senate Majority Leader Harry Reid.

The legislation "will even the playing field and help American goods compete in a global market — and keep American jobs here at home," he said.

China has routinely denied claims that its policies are responsible for trade imbalances and a high rate of unemployment in the United States, saying that structural problems were to blame.

"It is widely understand that the renminbi exchange rate is not the cause of China-U.S. trade imbalances," Ma said.

China's central bank said in a statement that the bill failed to address the underlying issues in the U.S. economy.

"The yuan bill passed by the U.S. senate will not solve its problems, such as insufficient savings, high trade deficit and high unemployment rate, but it may seriously affect the whole progress of China's reform of its yuan exchange rate regime and may also lead to a trade war which we would not like to see."

'Unfair'
China's currency has appreciated 7 percent since June 2010, when the central bank decided to adopt a more flexible exchange rate, said foreign minister spokesman Ma, adding that Beijing would continue "proactive" and "gradual" reform.

The central bank added that Chinese inflation had already pushed the real yuan exchange rate further "toward the equilibrium."

Ministry of Commerce spokesman Shen Danyang said the United States was trying to pass on the blame for its own failings.

"Trying to turn domestic disputes onto another country is both unfair and in violation of standard international rules, and China expresses its concern," he said in a statement issued on the ministry's website.

Shen said any move by the United States to force the yuan to appreciate would undermine joint efforts to revive global economic growth, which took another blow on Monday with data showing that global manufacturing shrank in September for the first time in over two years.

"It will weaken China-U.S. efforts to join hands and together promote global economic recovery," he said. "The global economic is in a complex, sensitive and changeable period, and so even more needs a stable international monetary environment."

U.S. critics of China's currency policy have gained some traction as a weak economy keeps U.S. unemployment stuck above 9 percent and as 2012 presidential elections draw near.

Sen. Chuck Schumer, D-N.Y., who has been sponsoring currency legislation for the past six years, said China's "predatory currency practices" were "undermining the economic health of American manufacturers and their ability to compete at home and around the globe."

It's time, said Sen. Bob Casey, D-Pa., to "let the officials in China know that there are consequences to cheating."

Passage of the bill by the Democratic-controlled Senate would send it to the House, which is run by traditionally free-trade-friendly Republicans.

House expected to pass bill
A China currency bill passed the House last year with 99 Republican votes, but lapsed because the Senate took no action. This year, the bill already has more than 200 House co-sponsors and this week supporters expect to reach 218, the number needed to pass it.

However, House Republican leaders have not shown a great appetite to pursue currency legislation, and it is unclear if the bill would ever face a vote in that chamber.

As with similar legislation in the past, the Obama administration has not taken a public stance on the bill, although White House spokesman Jay Carney said on Monday that the president shares "the goal it represents."

U.S. critics of the bill also warned of the risk of a trade war with China — one of the fastest-growing markets for U.S. goods — just when a weak global economy can least afford it.

The Emergency Committee for American Trade called the bill "a highly damaging unilateral approach that will undermine broader efforts to address China's currency undervaluation."

It also said the bill was unlikely to pass muster at the World Trade Organization and would open the door to Chinese retaliation "to the detriment of U.S. exports and jobs."

The Senate decision was a sign that China was being made a scapegoat by struggling western economies, said Wang Jun, a researcher at the China Center for International Economic Exchanges.

"Maybe the United States will not be the only and last country to do so. With the worsening of the European sovereign debt crisis, we must also be on high alert that euro zone countries could also press China on the exchange rate issue. We need to launch some pre-emptive measures to hit back against any more attacks," Wang said.

Reuters and The Associated Pres contributed to this report.

Video: Is a China Trade War Brewing?

Photos: The dance of two giants: History of modern relations between the United States and China

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  1. World War II alliance

    After Japan’s Dec. 7, 1941, attack on Pearl Harbor brought the United States into World War II, Washington joined forces with China’s Nationalist leader Chiang Kai-Shek to drive Japan’s invading forces out of China. This 1942 photo, taken in Burma, shows U.S. Gen. Joseph Stilwell with Chiang and Madame Chiang, aka Soong May-ling. At this meeting, Chiang informed his military staff that Stilwell would lead them against the Japanese forces. The Nationalist and rival Communist forces cooperated in fighting the Japanese invaders, but ultimately turned against one another to battle for control of China. (Getty Images) Back to slideshow navigation
  2. 1949: Communist victory

    Soviet-backed Communists, led by Chinese Communist Party Chairman Mao Zedong, won the nation's power struggle -- ultimately putting Beijing and Washington on opposite sides in the Cold War. In this Oct. 1, 1949 image, Mao proclaims the founding of the People's Republic of China. With the Communist victory, Chiang and many influential Nationalists fled to the island of Taiwan, where they set up a rival government in hopes of one day regaining control of the mainland. Despite its close wartime ties with the Nationalists, U.S. President Truman initially took a position of nonintervention in the bitter dispute between Beijing and Taipei. The outbreak of the Korean War in 1950 prompted Washington to get more involved in the region’s conflicts and to strengthen its military presence in the Taiwan Straits. (AFP - Getty Images) Back to slideshow navigation
  3. 1950-1953: Korean War face-off

    Conflict erupted between Russian-backed North Korea and U.S.-backed South Korea, creating a hot front in the Cold War. The Korean War pitted American-led U.N. troops and South Korean forces against North Koreans and their allies, including Chinese forces. The Korean War ended with a cease-fire — but not a peace treaty -- cementing the division of the Korean peninsula at the 38th parallel. It also established a substantial U.S. military presence in Asia — a long-term irritant to U.S.-China ties. In this image from the Korean War, U.S. Gen. Douglas MacArthur, right, commander of U,N. forces in Korea talks with Maj. Gen. Doyle Hickey. (Getty Images) Back to slideshow navigation
  4. 1960s: In rift with U.S.S.R., China looks West

    In the early 1950s, Moscow provided hundreds of advisers and substantial financial support for China’s new Communist leaders. But after Joseph Stalin died in 1953, the Sino-Soviet relationship deteriorated steadily over differences in ideology and international relations. Tensions escalated into military buildups along the Sino-Soviet border. After armed clashes erupted between Chinese and Soviet forces along China’s northeast border, many observers predicted war. Ultimately, the two sides backed down. But Mao came to realize that he could not confront both the U.S. and the Soviet Union simultaneously and decided that Moscow posed the greater threat. Here, a Chinese soldier stands guard in China's Xinjiang region on the Soviet-Afghan border in April 1969. (AFP - Getty Images) Back to slideshow navigation
  5. 1971: Ping pong diplomacy

    In a symbolic opening of communication with Washington, China invited the U.S. table tennis team to visit Beijing. The team, which was already in the region competing in Japan arrived on April 10, 1971, becoming the first U.S. sports delegation to visit Beijing since the Communists took power in 1949. The decision reportedly came directly from Mao. In this image, members of the American ping pong team watch a match between a teammate and a Chinese opponent in Beijing. (Frank Fischbeck / Time & Life Pictures via Getty Image) Back to slideshow navigation
  6. 1972: Nixon visit “changed the world”

    In February 1972, U.S. President Richard Nixon, who had a reputation as a tough anti-communist, traveled to China to hold talks with Communist Chairman Mao Zedong and Premier Zhou Enlai. On the final stop of the trip to Beijing, Hangzhou and Shanghai, the U.S. and Chinese governments issued the Shanghai Communiqué — a pledge to work toward the normalization of diplomatic relations. Nixon later said of the trip: "This was the week that changed the world,” in which the two sides agreed “to build a bridge across 16,000 miles and 22 years of hostilities which have divided us in the past.” In this Feb. 22, 1972, image, Mao and Nixon shake hands after their meeting in Beijing. (AFP - Getty Images) Back to slideshow navigation
  7. 1976: Mao's end, start of a new era

    The death of Chairman Mao Zedong in 1976 marked the end of an era of radical politics and isolation from the West. In just a few years, Deng Xiaoping triumphed over conservative ideologues who had surrounded Mao, and rose to leadership of China's Communist Party and government. While beginning experiments with economic reforms, Deng also opened the doors to broad cultural and educational exchange with the United States. In this image, Chinese citizens file past Mao as he lies in state in Beijing on Sept. 12, 1976. (AFP/Getty Images) Back to slideshow navigation
  8. 1979: Formal ties

    Formal diplomatic relations were restored between Beijing and Washington on Jan. 1, 1979. Simultaneously, Washington severed formal relations with Taiwan (Republic of China), while continuing business and cultural ties. Through the Taiwan Relations Act, Washington also promised to supply defensive weapons to Taiwan. Shortly after the resumption of ties with Beijing, Chinese Vice Premier Deng Xiaoping visited the United States, meeting with top U.S. officials and business leaders. Deng was pressing economic reforms in China and preparing to greatly expand his free market experiment in the 1980s. In this image, Deng, right, and his wife Zhuo Lin, far left, appear with U.S. President Jimmy Carter and First Lady Rosalynn Carter on Jan. 31, 1979. (AFP - Getty Images) Back to slideshow navigation
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    1989: Tiananmen crackdown puts relations on ice

    Popular protests in Beijing and other cities were crushed by a military crackdown, leaving hundreds of people dead. In response, the United States imposed economic and trade sanctions on China and many U.S. citizens working or studying there left the country. Beijing remained unrepentant in the face of the sanctions and criticism over its human rights record, which the Chinese government rejected as “interference” in China’s internal affairs. In this June 4, 1989, photo, dead civilians lie among mangled bicycles near Beijing's Tiananmen Square. (AP) Back to slideshow navigation
  10. 1992: U.S. weapons sales anger Beijing

    China protested vehemently when U.S. arms sales to Taiwan, which had been hovering around $500 million a year, suddenly jumped more than 1,000 percent with the sale of 150 F-16 fighter jets. China charged that the sale violated a 1982 agreement with Beijing in which Washington said it would not increase weapons sales to Taiwan in either quality or quantity. Supporters of the sale said it was in line with the 1979 Taiwan Relations Act, in which the United States pledged to provide arms to Taiwan seen as necessary for its defense. In this Sept. 12, 2007, image, missiles are arrayed next to an F-16 fighter jet at the Chiayi air force base in southern Taiwan. (Sam Yeh / AFP/Getty Images) Back to slideshow navigation
  11. 1995: Lee trip rankles Beijing

    For the first time since it re-established formal diplomatic ties with China, Washington granted a visa to a sitting Taiwan president. The move drew a harsh protest from Beijing, which also suspended nuclear and missile control talks with the United States. Lee Teng-hui, Taiwan's first democratically elected president, especially angered Beijing because of his ambivalence to reunification with China. Breaking from decades of Nationalist Party rhetoric, Lee stressed the right of Taiwan people to determine their future. Some feared that if Lee or newly empowered Taiwan voters made a formal call for independence, it could prompt military action by Beijing and pull the U.S. into the conflict. In this June 10, 1995, photo, Lee chats with Cornell University President Frank Rhodes after speaking at the school. (Bob Strong / AFP/Getty Images) Back to slideshow navigation
  12. 1997: Breaking the ice after a decade

    Chinese President Jiang Zemin and U.S. President Bill Clinton held formal talks in Washington in late 1997, marking the first state visit by a Chinese leader since before the 1989 Tiananmen crackdown. The meetings covered trade tensions, nuclear technology, human rights abuses and religious persecution in Tibet. In this image, Jiang and Clinton share a toast during a state dinner on Oct. 29, 1997 in the East Room of the White House. A year later Clinton traveled to Beijing for formal discussions, signaling that relations between the two countries were getting back on a more normal footing after a decade of tension. (Paul J. Richards / AFP - Getty Images) Back to slideshow navigation
  13. 1999: U.S. airstrike hits Chinese Embassy

    During NATO air raids on Serbia, U.S. warplanes bombed China’s embassy in Belgrade, killing three journalists in the building. U.S. President Bill Clinton and other U.S. officials apologized for what NATO described as a tragic error. But Beijing and many Chinese citizens believed the strike to be intentional, and the incident sparked anti-American protest in China. In this image, taken May 9, 1999, a day after the bombing, thousands of Chinese protesters march on the U.S. and British embassies in Beijing. (Stephen Shaver / AFP - Getty Images) Back to slideshow navigation
  14. 2000: Trade with China normalized

    After years of negotiation with Beijing, U.S. lawmakers granted China Permanent Normal Trade Relations status, allowing unconditional, unlimited access for Chinese-made goods into the U.S. market. It also ended an annual review of China’s human rights record, upon which continuation of trade access had been conditioned. The action also paved the way for China’s entery into the World Trade Organization in September 2001. From 2000 to 2008, U.S.-China trade volume soared from $116 billion to $409 billion. In this image from May 2000, Chinese workers produce shoes for a U.S. company at a factory in northeast China’s Shenyang city. (Goh Chai Hin / AFP/Getty Images) Back to slideshow navigation
  15. 2001: Midair collision

    A U.S. spy plane made an emergency landing on Hainan Island off China’s southern coast after a collision with a Chinese F-8 fighter jet. One Chinese pilot died after parachuting into the South China Sea. China detained the 24-member U.S. crew of the EP-3 Aries II reconnaissance aircraft for 11 days, releasing them only after the U.S. sent a letter of apology. Beijing also suspended all U.S. military visits to Hong Kong, a key stopover point, for three months. In this image from an April 13, 2001, briefing at the Pentagon, Secretary of Defense Donald Rumsfeld tells reporters that the Chinese jet became aggressive and hit the U.S. plane from below. (Getty Images) Back to slideshow navigation
  16. 2006: China’s top technocrat tours U.S.

    Chinese President Hu Jintao, who assumed control of the Communist Party, the government, and the military between 2002 and 2004, made his first visit to the United States as president. Hu, a member of what is known as China’s “fourth generation” of leaders, was generally seen as more pragmatic and less driven by ideology than past leaders -- Mao, Deng and Jiang. Hu’s four-day visit, which included a tour of Boeing, dinner with Bill Gates, a speech at Yale University, and talks with President George W. Bush, departed from the heavily scripted state visits of past Chinese leaders. In this image, Hu, second from left, listens to a presentation about new technology at Microsoft headquarters in Redmond, Wash. on April 18, 2006. (AFP/Getty Images) Back to slideshow navigation
  17. 2007: Dalai Lama award angers Beijing

    The 14th Dalai Lama greets supporters October 17, 2007 in front of the U.S. Capitol during a trip to Washington, D.C., to receive the Congressional Gold Medal, the highest civilian award bestowed by U.S. lawmakers. The award infuriated Chinese leaders who had long accused the Tibetan spiritual leader of seeking independence for Tibet, which China claims as part of its territory. The Dalai Lama has lived in exile since 1959 when China's military crushed the Tibetan resistance movement. He denies advocating independence for Tibet and instead accuses Beijing of committing cultural genocide in the region. (Mandel Ngan / AFP/Getty Images) Back to slideshow navigation
  18. 2009: U.S.-China recession tensions

    Amid global recession, U.S. Treasury Secretary Timothy Geithner traveled to China to discuss economic issues with China's top leaders. Washington pressed Beijing to let its currency trade more freely to help correct the trade imbalance. The U.S. also urged Beijing to encourage Chinese citizens to save less and spend more to help boost the global economy. An increasingly assertive Beijing also presented its agenda, calling on the United States to "guarantee the safety of China’s assets" in the U.S. Beijing worried that Washington’s policies would cause the dollar to depreciate, with dire consequences for its investments. Beijing holds $1.45 trillion in U.S.-denominated assets. In this June 2, 2009, image, Geithner meets with Chinese Premier Wen Jiabao in Beijing. (Getty Images) Back to slideshow navigation
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  1. Image: July 1942:  Chinese Nationalist military leader Generalissimo Chiang Kai-Shek with Madame Chiang and US Lieutenant General Joseph W Stilwell
    Getty Images
    Above: Slideshow (18) The dance of two giants
  2. Chinese Communist Party General Secretary Jiang Ze
    Mike Fiala / AFP - Getty Images
    Slideshow (16) The reign of Jiang Zemin

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