After several months of relative calm on Capitol Hill about US-China trade relations, leading House Democrats are making a noise.
They are calling on the Bush administration to employ 'all available tools at its disposal to address China's protracted, large-scale intervention in the foreign exchange markets to maintain an undervalued currency'.
In a five-page letter last week, Ways and Means Committee chairman Charles Rangel, and trade subcommittee chairman Sander Levin called for denying China a larger governance role at the International Monetary Fund unless Beijing stops intervening in the foreign exchange market. The letter was signed by 15 of the 24 Democratic members of the Ways and Means Committee.
House Democrats see the IMF as an ally in pressuring China to allow faster appreciation of the yuan. They are encouraged, no doubt, by the fund's decision in June last year to monitor members' exchange-rate policies with an eye towards achieving external stability and preventing fundamentally misaligned exchange rates.
Under this rubric, China's persistent and large current account surplus, massive foreign exchange reserves and capital controls imply a 'fundamentally misaligned' exchange rate, which would compel Beijing to consult the IMF. Mr Rangel wants concrete action to penalise China if it fails to comply with requests to realign its currency.
By a vote of 20 to 1 last summer, the Senate Finance Committee passed the currency exchange rate oversight reform act, hoping to counteract the 'unfair trade' practice of maintaining a misaligned currency to gain a competitive advantage. Senator Lindsey Graham crowed: 'No longer will the United States sit on the sidelines and allow other nations to gain an unfair advantage ... For too long, the game has been rigged against American business.'
Under the act, if China took no corrective action, the US Treasury could more easily label it a 'currency manipulator' and take account of the undervalued yuan in determining duties under anti-dumping laws. Treasury officials would have to consult the IMF, but could recommend changes in governance to penalise China.