For all the US fulmination about China's exchange rate trickery, it is likely to be a long time before any US reprisals come about.
Last Tuesday, the US Treasury issued a twice-yearly report on exchange rate policies in which it took China to task for a "highly distortionary" currency system that depressed US trade.
But it said the Chinese policies did not yet meet the standards required to designate the country a currency "manipulator" under the terms of US trade legislation.
It did warn, however: "If current trends continue without substantial alteration, China's policies will likely meet the statute's technical requirements for designation."
That would imply a deadline for China to relax its currency, the yuan, before the publication of the next Treasury report, due on October 15.
The US argues that the Chinese yuan's decade-old fixed peg to the dollar, which stands at 8.28, is encouraging a flood of Chinese imports at the expense of US industry.
US lawmakers are clamoring for action, angry at what they say is the loss of tens of thousands of US jobs to China.
The US Senate is due to vote in July on a bipartisan bill that would slap a 27.5 percent tariff on all Chinese imports if Beijing does not scrap the yuan-dollar peg within six months.
The US administration is hardly keen to see that measure come about, which might suggest its own veiled indication of a six-month deadline for China to act.
To list China as a currency manipulator, the Treasury must satisfy itself that the country is distorting the yuan-dollar exchange rate "for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade."
If currency manipulation is established, the 1988 Omnibus Trade and Competitiveness Act would require the US Treasury secretary, John Snow, to initiate negotiations with China.
The negotiations could be conducted via the International Monetary Fund or bilaterally. The aim would be to ensure that countries concerned "regularly and promptly adjust" the exchange rate "to eliminate the unfair advantage."
But what if the negotiations should fail? The commonly understood implication is that sanctions would ensue, but the US trade act fails to spell out the next stage.
Currency manipulation as such is not one of the illegal trade measures listed in Section 301 of the act, which spells out a raft of reprisals the US can take against a trade adversary.
Democratic Senator Joe Lieberman wants to fill in the gap. He is sponsoring legislation that would outlaw the deliberate distortion of an exchange rate under Section 301.
This portion of the 1988 act has sometimes been dubbed the "crowbar approach" to trade disputes. It allows the US to withdraw trade concessions, to impose tariffs and quotas, and to suspend preferential customs arrangements accorded to a country.
But before entering into uncharted territory in October, the US will be hoping that China heeds its demands for a revaluation of the yuan to help rectify a US$162 billion trade imbalance between the two countries.
Were Section 301 to come into play, it could kick off the biggest trade war in history. China has already warned that it will retaliate against any US action.
In any case, the 1988 trade act gives Snow a major get-out clause. He would not have to open currency manipulation talks, "where such negotiations would have a serious detrimental impact on vital national economic and security interests."
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