U.S. Action on China's Currency May be Gradual

Taking punitive action against China's currency policy may happen in "stages."


Four senators introduced legislation to move China toward a market-determined exchange rate, first by identifying currency that is "misaligned" with another currency, then approaching the International Monetary Fund, next approaching the World Trade Organization, and finally taking punitive action after 360 days of consultations with that country.

This is a step in the right direction, because "we want to continue to have dialogue with China," U.S. Chamber of Commerce Vice President for East Asia Myron Brilliant told "Power Lunch" viewers.

"We cannot have a confrontational approach to China. We need to engage them," Brilliant said. "Confrontation has never really worked in our bilateral relationship."

However, Alan Tonelson, a U.S. Business and Industry Council research fellow, said that the legislation will go nowhere, as Senators Charles Schumer (D-N.Y.) and Lindsey Graham (R-S.C.), among others, took on this task back in 2003. Yet China is breaking all the rules -- and time for talk has long passed, he said.

"China's current account surpluses, trade surpluses and foreign exchange holdings have soared at such a rapid and enormous rate that the degree of undervaluation [of the yuan] today is even more dramatic than it was back in 2005," Tonelson said.

As a result, U.S. companies are at a more "competitive disadvantage," he added.

He wants to see a more realistic piece of legislation that will benefit the companies who have been "victimized by China's currency legislation."