China criticizes U.S. tariff measure

China on Thursday warned that a bill passed by the U.S. House enabling tariffs against currency-manipulating countries could damage ties between the world’s two biggest economies.

Foreign Ministry spokeswoman Jiang Yu said China “firmly opposes” the legislation and told American lawmakers not to engage in protectionism.

Earlier in the day, a spokesman for the Commerce Ministry told state-run media that the legislation violated free-trade rules and would do little to narrow the United States’ massive trade deficit with China.

“Using the exchange rate to launch an anti-subsidy investigation is inconsistent with the relevant rules of the World Trade Organization,” spokesman Yao Jian was quoted as saying by the official New China News Agency. “You cannot say that China undervalues its exchange rate just because the U.S. has a trade deficit with China and then adopt trade protectionist measures based on this.”

Though neither official mentioned retaliatory action, experts said the specter of a trade war was growing, with the U.S. mired in a jobless recovery. In August, the U.S. unemployment rate was 9.6%; nearly 15 million Americans are unemployed.

The House bill would create a process by which U.S. companies could petition for new tariffs on countries that manipulate their currencies. China’s yuan is believed to be significantly undervalued to give its exports a price advantage against competitors. But the bill faces an uncertain fate in the Senate.

While the timing of the bill could be dismissed as grandstanding by Washington lawmakers ahead of November’s midterm elections, experts here said the weak U.S. labor market has made the exchange rate debate more serious than in the past.

“The pressure on China is more severe than ever before,” said Shi Yinhong, professor of international relations at Beijing’s Remin University. “I think China is very worried about this latest development. If Congress passes this bill, China will take retaliatory action, maybe tariffs.”

Although the Chinese leadership has staunchly rejected calls to boost the yuan, it did remove the yuan’s two-year peg to the dollar in June, allowing the currency to float. Since then, the yuan has risen about 2.1%, far short of the 20% to 40% by which some U.S. officials and manufacturers believe the yuan is undervalued.

China’s central bank says it favors currency reform, but not a sudden, dramatic strengthening that some worry could undermine the nation’s export-driven economy and threaten the jobs of tens of millions of manufacturing workers.

“If all of China’s exporters are levied tariffs it will be quite a devastating event,” said Li Wei, a researcher for the Commerce Ministry. “Migrant laborers would lose their jobs and it would be a huge problem for political stability.”

Yao, the Commerce Ministry spokesman, said the U.S.-China trade imbalance is not the result of exchange rates. He said companies were attracted to China because of its highly developed manufacturing infrastructure.

“China has never gained a competitive advantage from undervaluing” the yuan, Yao said. Multinational firms are worried that a trade war would be just as punishing for American companies, which increasingly are relying on China for profits.

“Blaming China won’t help the U.S. economy, but this legislation may cost American jobs,” said John D. Watkins Jr., chairman of AmCham-China, an organization that represents American companies doing business in China.

david.pierson@latimes.com