May 11 (Bloomberg) -- Lawmakers from both parties blasted the U.S. Treasury for failing to brand China a currency manipulator and said they would press ahead with legislation to force the Bush administration's hand.

The Treasury, which has repeatedly said it wants China to loosen its grip over the value of the yuan, chose yesterday to avoid a direct confrontation. While China hasn't made enough progress, it isn't deliberately seeking an unfair trade advantage with its currency policies, the Treasury said in its semiannual report on the practices of U.S. trade partners.

The report triggered immediate criticism from lawmakers who have proposed measures that would punish China.

``The administration chose to plant its head in the sand,'' said Representative Phil English, a Pennsylvania Republican who is sponsoring legislation to widen duties on Chinese imports and refine the definition of currency manipulation in a way that would likely force the Treasury to take action. ``Our response to this should be to act legislatively.''

English's measure and more than a dozen others that target China will get a lift, analysts say, as the U.S. trade deficit heads for what may be a sixth record-setting year in a row, small manufacturers lose sales to Chinese exports and lawmakers eye November elections likely to turn on economic issues.

``The president and Secretary Snow have been way behind the rest of Washington in seeing that China is in violation on its currency,'' said Ernest Preeg, a senior fellow at the Manufacturers Alliance, referring to Treasury Secretary John Snow. Preeg's group, based in suburban Washington, represents companies such as aircraft maker Textron Inc. and factory-equipment maker Rockwell Automation Inc.

Chinese Advantage

Preeg estimates that the value of the yuan, a denomination of the renminbi, is being deliberately held at 40 percent less than its fair market value against the dollar, giving Chinese goods a competitive advantage.

John Engler, the president of the National Association of Manufacturers, said the administration had missed a chance to drain support from the legislation targeting China.

``A citation for currency manipulation would have put China on notice that the U.S. government is serious about this,'' said Engler, whose Washington-based organization is the largest U.S. group lobbying on behalf of factory owners, in a statement. ``Economic history shows that severe currency misalignments, if not dealt with, could increase the dangers of protectionism.''

Yesterday's report covers the second half of 2005. Three weeks into that period, China ended a decade-old peg to the dollar, revalued the yuan by 2.1 percent against the dollar and said it would allow the currency to fluctuate by as much as 0.3 percent a day. The yuan has climbed 1.3 percent since.

Yuan's Value

The yuan closed little changed at 8.0039 per dollar at 3:30 p.m. yesterday in Shanghai, according to data Bloomberg compiled. Forward contracts predict it will strengthen to 7.67 in a year if freely traded.

A bill sponsored by Republican Senator Charles Grassley of Iowa and Democratic Senator Max Baucus of Montana would require the Treasury to determine when currencies are ``fundamentally misaligned'' with the dollar, and then force action such as blocking increases in China's voting share at the International Monetary Fund or cutting off U.S. loan guarantees.

``It's time to change the way we do business on currency, not only with China but with any other country whose misaligned currency hurts the U.S. economy,'' Baucus said in a statement yesterday. The ``Treasury report highlights the need to update and improve the law on this matter.''

Damage to Relations

English's bill passed the House of Representatives by a vote of 255 to 168 in July. It has been stalled in committee in the Senate.

Representatives of companies that stamp auto parts were on Capitol Hill yesterday to lobby lawmakers on a House measure similar to English's sponsored by Democrat Tim Ryan of Ohio and Republican Duncan Hunter of California. It would change the definition of exchange-rate manipulation and allow companies to seek import duties on products that benefit from the subsidy of an undervalued currency.

The Treasury's failure to take a tougher stance yesterday ``is just another reason this should be passed,'' said William Gaskin, president of the Precision Metalforming Association, based in Independence, Ohio, which organized the lobbying visits.

Schumer and Graham

The most stringent anti-China measure has been proposed by Senator Lindsey Graham, a South Carolina Republican, and Charles Schumer, a New York Democrat. It would impose 27.5 percent duties on all Chinese goods to try to force China to lift the value of the yuan.

The lawmakers, who visited China in March, agreed to wait until Sept. 30 to pursue a vote on their measure. They indicated yesterday that they would stick with that timetable, even as they criticized the new report.

Treasury officials ``always seem to come right up to the line, but then refuse to cross it,'' Schumer said at a news conference with Graham. ``If the administration is unable or unwilling to take action on their own, then our bill is the only option to get China to treat us fairly.''

Graham said: ``I am tired of talking, I am tired of visiting, I am tired of happy face.'' He added: ``If the yuan doesn't appreciate in a significant matter between now and September, we will have a vote.''

Exports account for about a third of China's gross domestic product and helped its economy double in size over the past decade to become the world's fourth largest. The People's Bank of China limits gains in the currency by buying dollars flooding into the country and selling yuan.

Rising Deficit

The U.S. trade deficit with China rose to a record $201.6 billion last year, according to U.S. figures. Lawmakers blamed it on an artificially weak yuan.

The new report said China has made ``far too little progress'' in making its exchange rate more flexible. It called China's currency policy a ``tightly managed crawling peg against the dollar.''

It also noted that China's currency regime is becoming a ``systemic risk'' by fueling inflation that might hobble China's economy. It said concern that the economy can't handle a stronger yuan is unfounded.

In the previous currency report in November, the Treasury let China off with a warning, saying its policies didn't meet the ``technical'' definition of a manipulator, although the country probably would be named without policy changes. The Treasury made no such threat yesterday, instead devoting five pages of its 34- page report to criticism of China's economic policies.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; Kevin Carmichael in Washington at kcarmichael@bloomberg.net

Last Updated: May 10, 2006 23:19 EDT