The US government may spark a trade war with China if Congress approves the proposal on China’s currency issue, experts said on Friday.

The jeopardy of passing the proposal and its taking effect could lead to China’s appeal to the World Trade Organization for the U.S. misstep and even ask for China to impose retaliatory tariffs on U.S. exports, said Ni Feng, deputy director of the Institute of American Studies affiliated to the Chinese Academy of Social Sciences (CASS).

In a hearing on Capitol Hill on Wednesday, two U.S. Democratic representatives alleged that China has, for years, manipulated its currency to gain a competitive advantage over U.S. manufacturers.

Also, the U.S. Congress begins a second day of hearings Thursday on the China currency issue, with Treasury Secretary Timothy Geithner expected to present what steps the Obama administration should take to pressure China to revalue its currency, known as the yuan.

This is a move entrusted with thick political flavor by putting forward the proposal, said Chen Fengying, director of the Institute of World Economic Studies affiliated with the China Institute of Contemporary International Relations.

The yuan issue is easy to attack as the Democrats fear November midterm election losses, and therefore the possibility of approving the proposal soars, Chen warned.

“Hope for the best and prepare for the worst,” suggested Cao Honghui, a researcher with the Institute of Finance within CASS, to the Chinese government.

Meanwhile, Cao said that China’s currency rate is not the root cause of the U.S. trade deficit and is by no means the key to opening the U.S. domestic unemployment deadlock.

Many U.S.-imported products from China are not direct competitors in the U.S. since they don’t have counterparts who also produce the same products. To the U.S., importing less of these products from China means buying more from other countries, said Cao.

Take tires, as an example. The special protectionist tariff levied on China did not make the U.S. public consume fewer tires or create more jobs in the industry. Instead, it increased burdens onto U.S. consumers, Cao said.

In the first half of the year, U.S. affordable tire imports rose 21 percent in volume from the same period last year, while the value of the imports jumped 30 percent year on year. However, U.S. tire imports from China decreased, accounting for only 24 percent of its total imports during June of this year, compared with 45 percent during August last year.

Of note, 36 U.S. farm and business groups urged Congress on Tuesday not to pass legislation threatening China with duties on some of its goods if Beijing does not revalue its currency.

“We strongly oppose legislation that would allow the use of either the anti-dumping or countervailing duty law to address currency concerns for several years,” said the group, which included the U.S.-China Business Council, the American Soybean Association and the American Meat Institute, in their letter to U.S. councilors.

China is not at once replaceable in the manufacturing sector worldwide as the appreciation of the yuan will harm the interests of U.S. consumers, its industries and international enterprises, as well as the developing and underdeveloped countries, said Zuo Xiaolei, Chief economist of China Galaxy Securities.

China is the third largest export target market of the United States. As of July 2010, U.S. exports to China grew 36.2 percent, 15 percentage points higher than the increase of imports. ‘ The U.S. is China’s second largest trade partner.

China, the largest holder of U.S. Treasury debt, added slightly to its holdings in July, to total 846.7 billion U.S. dollars, according to the U.S. Treasury Department.