American manufacturers of aluminum extrusion scored both a major victory and defeat Tuesday as the U.S. Commerce Department agreed that China illegally subsidizes its aluminum factories, but declined to consider China’s undervalued currency as an illegal subsidy, paving the way for a battle in Congress.

U.S. aluminum manufacturers applied to the Commerce Department for trade relief earlier this year, claiming that their Chinese competition had gained a price advantage due to China’s undervalued currency, causing imports to increase dramatically and resulting in steep job loss in the domestic industry.

While the Commerce Department agreed that China’s aluminum industry has been the beneficiary of government subsidies, they said that China holding its currency below market value does not meet the legal standards to file for trade relief. Those standards require the harmed party to prove that subsidies target a specific industry. Currency manipulation benefits all of China’s industries economy-wide.

“We deeply regret that the Commerce Department failed to use the anti-subsidy law, as it was intended, to protect American workers and companies,” said USW International president Leo W. Gerard in a statement. “The decision flies in the face of the consensus that China is, in fact, undervaluing its currency.

China is the world’s most well-known practitioner of currency manipulation. A study by the U.S.-China Economic and Security Review Commission found that China’s currency may be undervalued by as much as 40 percent. In effect, that makes exported Chinese goods and services 40 percent cheaper than market value. At the same time, U.S. imports are 40 percent more expensive than they should be.

The Commerce Department’s failure to address China’s undervalued currency is part of a pattern of inaction by the Obama administration. Twice the Obama led Treasury Department could have labeled China a currency manipulator, but failed to do so. As a presidential candidate, Obama regularly slammed the Bush administration for failing to label China as a currency manipulator, but has carefully avoided speaking on the issue since taking office. Nor has the White House pushed for the passage of any bills dealing with Chinese currency manipulation, even though Obama co-sponsored a similar measure as a senator.

“Instead of standing up for the interests of American workers and manufacturers, the Commerce Department has turned a blind eye,” Gerard said. “The time has now come for Congress to take strong action by providing the tools necessary to hold China accountable for its deliberate currency undervaluation and to level the playing field to keep our jobs here in the United States, such as passing the Ryan-Murphy bill, H.R. 2378, the Currency Reform for Fair Trade Act.”

The Currency Reform for Fair Trade Act 2009 would define currency manipulation as an illegal, trade distorting subsidy and would provide U.S. lawmakers with the tools to redress the practice. If a country was determined to be guilty of the practice, U.S. lawmakers would then be able to impose countervailing subsidies and antidumping duties to neutralize the negative effects of currency manipulation.

Past versions of the bill garnered as many as 180 co-sponsors in the House and over a dozen in the Senate. However, it has stalled in committee each time it has been introduced.

Aluminum manufacturers did receive some trade relief from the Commerce Department, which ruled that the industry could impose countervailing duties of up to 137.65 percent on Chinese aluminum exports. However, other industries were closely watching the case, many hoping to apply for trade relief of their own due to China’s undervalued currency.

“It’s now up to Congress to pass legislation to strengthen and modernize our trade laws, so that the devastating impact of currency manipulation can be factored into penalties for subsidies and dumping,” the Alliance for American Manufacturing, a nonprofit trade association made up of 10 companies, mostly steel concerns, and the United Steelworkers, said in a statement.

Print PDF