It would be "economic suicide" for the United States if the U.S. Congress passes a bill which would impose a 27.5 percent tariff on Chinese imports, said a Morgan Stanley economist in Beijing.
Stephen Roach, chief economist of investment bank Morgan Stanley, said in Beijing on Tuesday that the bill sponsored by U.S. senators Charles Schumer and Lindsey Graham would be a "terrible mistake" if it passes and could force China to reduce its purchase of U.S. bonds that would further weaken the U.S. currency.
Currently, Senators Schumer and Graham are visiting China to evaluate China's currency system.
Roach said in 2003, Schumer and Graham sponsored the bill that would impose tariffs on Chinese exports if China doesn't revalue its currency. The U.S. Senate will vote on the bill at the end of this month.
Roach said the United States now relies on overseas investment than at any time before, and passage of the bill would be tantamount to "economic suicide."
The Chinese currency, also known as Renminbi or RMB, has gained nearly 1 percent against the dollar following a 2 percent revaluation, with the biggest daily increase charted last week.
China's currency strengthened last Friday to its highest level against the U.S. dollar since its July 21 revaluation. Last week's rise was credited to heightened market forces, a weaker dollar and technical rebounds.
Last Friday the China Foreign Exchange Trade System announced the daily benchmark, or the central parity rate for the dollar was 8.0286 yuan, falling for the first time below 8.03 yuan. The rate climbed up to 8.0306 on Wednesday.
The People's Bank of China, or the country's central bank, early this year began a new policy of calculating the yuan's value against the U.S. dollar based the weighted average of a basket of international currencies provided by major banks. The highest and lowest offers are excluded from the calculation.
Giving banks a role in setting the daily exchange rate is seen as a sign that the central bank is willing to allow market forces a greater role in daily trading, analysts acknowledge.
According to Roach, the Chinese's yuan's value against the dollar could rise to 7.5 by the end of this year, if the yuan's value against the dollar were to soon hit the magic number of eight to one.