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China-U.S. Trade Talks Leave Some Unsatisfied

This week saw a historic round of U.S.-China trade talks. What was the result? Greater Chinese pride, according to Krishna Guha, the chief U.S. economics correspondent for the Financial Times. He joined CNBC's chief Washington correspondent, John Harwood, to tell "Power Lunch" viewers what the talks produced -- and what domestic and global ripples to expect.

Despite controversy over currency reform, China "was delighted to have this economic dialogue," Guha told CNBC's Bill Griffeth. Why? Because the mere fact of the talks "accords them enormous respect" to "stand as equals" with the U.S., he said.

But Guha pointed out that China fears being drawn into "specific short-term negotiations" that would bind the Asian country to "tangible results that the U.S. can bank on." Thus, any agreements and resolutions may be less conclusive than some Americans would hope.

Harwood agreed that Chinese resistance is a "tough nut to crack," and said that Treasury Secretary Henry Paulson is "feeling a lot of heat." On the one hand, legislators and the financial sector are pressuring him for results on America's $233 billion trade deficit; on the other, China "holds a lot of cards," including the cheap goods that U.S. consumers want, and the $1 trillion in Treasury bills underwriting American debt.

Harwood reported that Sen. Charles "Chuck" Schumer (D-N.Y.) is unsatisfied with the results of the talks, and is pressing for legislation to punish China for its currency policies.

Guha warned that such legislation could be "very explosive to our relationship." He noted that a bill sponsored by Schumer last year sought very heavy tariffs, but was too stringent and too divisive to be passed. This time, Schumer's more moderate bill has the approval of Sen. Charles Grassley (R.-Iowa) -- and might have a better chance of passing.

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