Lawmakers returning from holiday recess are facing renewed calls to challenge Beijing on its undervalued currency after the Treasury Department once again failed to label China as a currency manipulator in its semi-annual report on monetary policies.

Led by labor unions and propelled by the fact that China just announced a large jump in its trade surplus, policymakers may have no choice but to tackle an issue that the Obama administration has avoided like the plague.

“Everyone knows China manipulates its currency,” Sen. Chuck Grassley (R-IA) said in a statement. “If the President continues to avoid acknowledging China’s currency manipulation and fails to address it in a meaningful way, Congress will have to act.”

After delaying an earlier report that was expected to label China as a currency manipulator and working with Beijing officials to behind the scenes to force reforms, the Treasury Department once again failed to address the issue and China has done little in the way of reforms.

Beijing said on June 19 that it would gradually allow its currency to appreciate, at its own pace and on its own timetable. Since then, however, the value of China’s currency has gained just one percent on the dollar.

“When you consider that it’s undervalued by as much as 40 percent, that one percent is meaningless,” Leo Gerard, international president of the United Steelworkers (USW) said in a statement.

For the past two years, China currency has been pegged to the dollar. Some economists believe that the undervaluation is by as much as 40 percent. An undervalued currency makes China’s exports to America much cheaper and causes the price of America’s goods sold to China to be overvalued and therefore less attractive.

The practice has allowed China to gain a competitive advantage on the U.S. in international trade. The last time the U.S. and China had a balanced trading relationship was in 1985. Since 2005, Americans have spent $1.1 trillion on Chinese products; Chinese consumers have bought just $272 billion worth of goods over that same time.

The trade deficit has cost America 2.4 million jobs between 2001 and 2008. According to the Economic Policy Institute, at least one million of those were the result of currency manipulation.

“President Obama’s goal of doubling exports within five years will be impossible to meet if illegitimately undervalued Chinese currency continues to force American manufacturers out of business,” Gerard said, pointing out that paper, steel and pipe manufacturers have all been “victims of the distorted market“ created by China‘s undervalued currency.

A bill in recently introduced in the Senate that would force Beijing’s hand on the issue is proving to be one of the more popular pieces of legislation of the Obama presidency, with strong support on both sides of the aisle.

The Currency Exchange Rate Oversight Reform Act of 2010, introduced by Sen. Chuck Schumer (D-NY) currently has a bipartisan coalition of 18 co-sponsors. Some have estimated that the bill could garner up to 80 votes in the bitterly divided upper chamber.

“The administration is correct in calling the renminbi undervalued,” Gerard said. “The next crucial step is to do something about it.”

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