US senators seek probe into China's yuan peg

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Two US senators who authored legislation aimed at pressuring China to lift the value of its yuan said on Thursday they asked the Commerce Department to investigate alleged Chinese currency "manipulation."

Sen. Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, said the department has legal authority to determine whether China's currency practices are a form of subsidy and if so, impose tariffs on Chinese imports.

"Commerce has authority under existing law to initiate investigations that can help US industries and protect US jobs, and we are urging the Department to use that authority," the senators wrote in a letter to Commerce Secretary Gary Locke.

The letter comes as President Barack Obama returns from an extended trip to China and other Asian countries in which he urged Chinese President Hu Jintao to move to a more market-oriented exchange rate. Hu made virtually no response to the overtures.

Schumer and Graham criticized Obama for taking essentially the same stance as the Bush administration in failing to make a determination that China is manipulating the yuan. The senators and US manufacturers say the yuan is pegged at an artificially low value against the dollar to give China a cost advantage in trade.

Graham and Schumer have authored legislation for several years running that would impose punitive duties on Chinese goods if it failed to move to float its currency. The bill was approved by the Senate Finance Committee in 2007, but never went to a full Senate vote.

Schumer told US Treasury Secretary Timothy Geithner in a Joint Economic Committee hearing that US handling of the yuan issue is "infuriating".

"Today there are certainly hundreds of thousands of - and maybe even more - Americans who are out of work because the Chinese are unfair and manipulate their currency," Schumer told Geithner.

"And they are are mercantilist in my opinion and they want to accumulate their wealth in reserves and while they occasionally give verbiage, they give the back of their hand to the world economy, even though they gain from it. And frankly, I am tired of us just shrugging our shoulders and walking away," Schumer said.

Geithner responded by saying that he believes that China understands the importance of moving toward a more flexible exchange rate and would do so, but he could not say when this would happen.

"It makes it harder for the financial system to work when you have a large country like that (China) tying its currency directly to the dollar. I think that's going to have to change and I think it will change over time, and my own sense is that it's not going to take that much time."

China began a program of increased yuan flexibility in July 2005 and steadily strengthened its value, from about 8.2 yuan to the dollar to around 6.8 by July 2008. But the yuan has been held at roughly that level ever since that time, when the financial crisis significantly worsened.