A bill that would give US companies the ability to defend themselves against currency manipulation - with China the most likely target - has edged closer to becoming law after an overwhelming vote in its favour yesterday (29 September) by the US House of Representatives.

The Currency Reform and Fair Trade Act, which was passed by a wide 348-79 margin, would enable US companies to defend themselves using countervailing duties and anti-dumping law against countries that manipulate their currency. It is aimed at countries like China, which allegedly aligns its currency to the US dollar at a below market rate so that its goods are less expensive on international markets.

Representatives for US apparel and footwear importers said Wednesday that the legislation "primes the United States and China for a widening trade war" and that erecting additional trade barriers stifles US competitiveness in the global market.

"The rhetoric associated with Congressional consideration of this legislation threatens American jobs, including jobs in the US apparel and footwear industry, while doing nothing to require China to revalue its currency," said Kevin Burke, president and CEO of the American Apparel & Footwear Association (AAFA). 

"Its implementation could put the United States out of compliance with its international trade obligations while subjecting American consumers to higher priced goods."

On the other side of the fence, though, the National Council of Textile Organizations (NCTO), which textile makers, applauded its passage as "a historic vote for jobs" and one that is a "big step closer to fair competition in the global marketplace and to a strong economic recovery."

"For the first time in a decade, US textile mills are adding jobs and re-opening plants," said NCTO president Cass Johnson.

"If China allowed its currency to appreciate to market levels, we believe the textile industry in the United States would add thousands of additional new jobs, build or re-open dozens of plants and revitalise essential export trade with our western hemisphere partners."

The bill would require the Commerce Department to determine whether a country's currency is undervalued and constitutes a prohibited export subsidy when considering "countervailing" duty cases. If so, Commerce could impose higher duties than it would under existing rules.

But according to the National Retail Federation (NRF), countervailing duties, which apply to only a few targeted imports, amount to "a micro-economic mechanism" that "is simply the wrong tool to address a large, macro-economic issue such as currency policy in a trading relationship worth hundreds of billions of dollars."

The legislation was introduced in response to claims by US manufacturers that China's long-time policy of pegging its currency to the US dollar has allowed Chinese manufacturers to undercut US companies.

China earlier this year said it would begin allowing the yuan to float against a basket of currencies. The value of the yuan has increased more than 1% recently but critics remain unsatisfied.

NRF senior vice president for government relations, Steve Pfister, said the legislation would violate WTO rules because currency exchange practices are not included under the list of government financial contributions the WTO allows to be considered in countervailing duty cases.

Moreover, since International Monetary Fund economists have been unable to accurately determine the extent to which the Chinese currency is undervalued, any calculation by Commerce would be arbitrary and duties based on the calculation would be locked in for a year even if the value were to change during the interim.

China would also be discouraged from moving beyond the currency peg set by Commerce, he believes.

The measure now moves to the Senate for consideration and needs President Barack Obama's signature before it would become law.