U.S. lawmakers are drastically stepping up their pressure on the Obama administration to act on China’s trade distorting practice of manipulating its currency and, in some cases, taking matters into their own hands.

In a letter co-authored by Reps. Michael Michaud (D-ME) and Tim Ryan (D-OH) and signed by 128 House colleagues, including 40 Republicans, they urge Treasury Secretary Timothy Geithner and Commerce Secretary Gary Locke to do more to stop Beijing from purposely undervaluing its currency.

“China continues to flout international trade laws by manipulating its currency value to increase its trade advantages,” Ryan said in a statement. “This is completely unacceptable.”

The letter asks the Treasury Department to properly label China as a currency manipulator in its semi-annual April 15 report on the matter. Despite the ample evidence that China is engaging in the illegal practice, the Obama administration’s Treasury Department has failed to identify China as a currency manipulator in its two reports to the Congress on Currency, leading some to believe that with nearly $1 trillion in American currency reserves, China now holds all the cards in negotiations.

Once China is labeled as a currency manipulator, the U.S. would then be able to apply countervailing duties on Chinese products in the defense of American companies, according to the letter. The U.S. could also seek sanctions at the World Trade Organization at that point. If none of those measures work, the letter suggests slapping steep tariffs on Chinese products.

Failure to act will result in devastating consequences for the nation’s economy, according to Michaud, co-author of the letter and Chairman of the House Trade Working Group.

“China’s currency manipulation essentially subsidizes Chinese exports and imposes tariffs on foreign imports. This presents an insurmountable trade barrier to U.S. manufacturers,” said Michaud. “If the administration fails to act on this issue it will hold back our economic recovery and hurt the ability of American small businesses and manufacturers to increase their production, keep their doors open, and create jobs.”

Coinciding with the letter is the introduction of bipartisan legislation in the Senate that would require the U.S. to act in order to counteract the effects of Chinese currency manipulation. Introduced Tuesday by Sens. Chuck Schumer (D-NY), Sherrod Brown (D-OH) and Lindsey Graham (R-SC), the legislation is similar to a bill taken up by Congress in 2007.

If passed, once Beijing is labeled as a currency manipulator, all federal procurement from China would be banned, the U.S. would be obligated to take action at both the International Monetary Fund and the World Trade Organization and U.S. industries would individually be allowed to seek countervailing duties against imports from China.

“Now more than ever, there is a consensus to finally confront China’s currency manipulation,” Schumer said in a statement, claiming he would attach the bill to a piece of “must-pass” legislation. “It is the single biggest step we can take to promote U.S. job creation, particularly in the manufacturing sector. We plan to move forward with revamped legislation on this issue in the coming days.”

Chinese officials were quick to strike back on Sunday at the allegations of currency manipulation, claiming that the yuan is at an appropriate level and denying that its currency has caused major imbalances in the world.

But there is ample evidence that China is actively manipulating its currency, and the undervalued yuan does have a significant impact on the global economy.

A recent 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.

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.

That massive trade imbalance has resulted in steep job losses, especially in those industries in which China is actively trying to gain an advantage on the U.S. According to the Economic Policy Institute, from 2001 to 2007, the U.S. lost 2.3 million manufacturing jobs to China due to massive trade deficits.

In addition to the letter and the bill, House Way and Means Committee Chairman Sander Levin announced that his panel would hold hearings on the matter beginning March 24.

“Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe,” Nobel Prize winning economist Paul Krugman declared in his New York Times column Monday. “It’s time to take a stand.”

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