U.S. Senate Banking Committee approved legislation on Wednesday giving the Treasury Department new tools to pressure China to revalue its currency, despite the Bush administration’s warning the bills could trigger a wave of protectionism around the world according to Reuters.

The bill tightens the definition of currency manipulation and would require the Treasury to label any country that has both a material global current account surplus and a significant trade surplus with the United States a currency manipulator.

The bill, aimed chiefly at China and what critics in the United States call a grossly undervalued RMB, closes a loophole in the current law that allows the Bush administration to consider China’s intent when determining currency manipulation.

China Venture News had this to add about the legislation:

Anti-China sentiment in Congress is plentiful at the moment. Many lawmakers think that revaluing the Yuan would make Chinese goods more expensive in the U.S., help correct the trade deficit between the two countries, and possibly create new jobs in America.

President Bush has said that the bill could lead to a round of international protectionism that would be bad for the American economy and that he will veto the bill if it makes it to his desk.

The panel voted 17-4 in favor of the bill just one day after U.S. Treasury Secretary Henry Paulson, currently attending the biannual China-U.S. “Strategic Economic Dialogue” in Beijing, warned congressional action on the currency issue could backfire on the United States.