The US Senate passed a bill to punish China for alleged currency manipulation, a move Beijing slammed as a "time-bomb" that could start a trade war between the world's top two economies.
Long frustrated at the alleged job-killing impact of China's forex regime, Democratic and Republican senators came together to pass the bill 63-35. But it faces a bleak future in the Republican-led House of Representatives.
"We are in trade war. But today we're fighting back," said Democratic Senator Sherrod Brown, one of the bill's champions, defying the White House's refusal to back the bill at a time of renewed global economic unease.
The proposal, powered by a tide of US voter frustration at a sour economy and high unemployment ahead of November 2012 elections, envisions retaliatory duties on Chinese exports if the value of the yuan is unfairly "misaligned".
But Republican House Speaker John Boehner has signaled that he will not bring the legislation to a vote, calling it "dangerous" to economic relations between the world's number one and two economies.
China, accusing the US senators of scapegoating it heading into an election year, said the bill flouted World Trade Organization rules and risked igniting an all-out trade war.
"It is a serious breach of WTO rules, which cannot solve the US's own economic and employment issues, and will... seriously interfere with Sino-US economic and trade relations," said foreign ministry spokesman Ma Zhaoxu.
The official Xinhua news agency said: "What the US Senate did planted a ticking time-bomb that may ignite a potential trade war between the world's two largest economies."
"Some US politicians are once again wooing voters by making China out to be a scapegoat for the country's domestic troubles before next year's presidential election," it said in a commentary hours after the Senate vote.
President Barack Obama last week accused China of "gaming the trade system" in a way that hurts the US economy, but declined to back the legislation and worried it could violate WTO rules.
Appearing on Bloomberg TV, US Treasury Secretary Timothy Geithner reiterated Obama's concerns about breaking international trade rules but, asked whether senators had fired the first shot in a trade war, replied: "They did not."
Many in Washington agree that China keeps the yuan unfairly low against the dollar, giving its goods an edge of as much as 30 percent over similar US products, widening the trade deficit and costing American jobs.
But the measure's opponents, stressing the bill's cost on China ties, also warn that a rise in the yuan would merely boost manufacturing and jobs in countries such as Vietnam or Malaysia -- not in the United States.
The legislation's backers, an unusual coalition of Democrats and Republicans, have said it's time for Washington to take on Beijing, and predict a boost in the yuan will make Chinese workers wealthier and more likely to buy US goods, thus creating jobs and narrowing the trade gap.
They also say that current US law and multinational dispute mechanisms have failed to curb what they call Beijing's unfair practices, which also include favoring Chinese producers for government contracts and tolerating rampant intellectual piracy.
"This vote showed we will not be bullied by China when it is clear they are in the wrong," Republican Senator Lindsey Graham said, adding: "We ignored the threats and do not apologize for taking this action."
Republican House leaders have pointed out that Obama's Treasury Department has refrained from labeling China a currency cheat and said they have no plans to bring the legislation up for a vote, effectively killing it.
But House aides say it could return to life if the issue somehow became a core dispute as Obama faces off with his as-yet-undetermined Republican foe ahead of next year's elections.
The issue has split the top two Republican White House contenders, with Texas Governor Rick Perry opposing it and former Massachusetts governor Mitt Romney saying he would confront China on his first day in office.
"The Speaker should give it an up-or-down vote as soon as possible," said Democratic Senator Chuck Schumer.