As could be expected, Chinese government agencies and think tanks are reacting strongly to what they perceive as a protectionist move.

The People's Bank of China, the country's central bank, said the Senate bill would not help resolve the United States' domestic issues such as its trade deficit, low level of savings and high unemployment, but could affect the economy and market confidence.

In the event the Senate bill makes its way into law, a case will most likely be made against the US at the WTO.

WTO rules do not allow countries to impose punitive duties on the basis that a certain country's currency is undervalued. That this is so is appropriate. Valuing currencies to see if they are "manipulated" is very complex and difficult.

For example, the US has also been accused of pushing its currency down through its controversial "quantitative easing" policy, when the central bank pumps funds into the banking system. And is Switzerland "manipulating" its currency by announcing it will not tolerate further appreciation of the franc?

Allowing the currency issue to be a subject of possible unfair practice open to trade sanctions would open the door to many other issues being similarly recognized, such as a country's tax rates, interest rates, labor and environmental standards. There will be no end to having reasons for new trade protectionism.

A US law based on the Senate bill will probably be found to be inconsistent with US obligations in the WTO. But by the time the WTO dispute system panel makes a final ruling (this may take years), some damage may already be done should the US act against Chinese imports in the meanwhile.

China may not take the US actions lying down and could initiate retaliatory action on US goods. Thus, a trade war may be unleashed.

Interestingly, although some well-known American economists like Paul Krugman and Fred Bergsten advocate US action against Chinese imports, some business associations and important newspapers like the New York Times, Wall Street Journal and Financial Times have come out strongly against the Senate bill for its protectionism and trade-war potential.

The high-pitched attack on China because of its large trade surplus with the US is misplaced. Little of the gross surplus actually accrues to China.

A 2010 paper by the South Centre shows that only a small part of China's exports to the US is actually retained as income in China.

For example, in 2005, China's gross trade surplus with the US was $172 billion but in value-added terms (what is earned by the respective countries after deducting the import content of their exports) it was only $40 billion.

Further, a large part of the Chinese trade surplus in value-added terms was earned by foreign firms in China and thus does not belong to China. As a result, income left in China was no more than 30 percent of total value of exports to the US.

Therefore the criticism that China enjoys extraordinarily high trade surpluses with the US is misplaced.

Also, even if US trade measures reduce Chinese imports into the US, this does not mean that the US import bill will be reduced. Goods from other developing countries such as Vietnam or Indonesia may just replace the Chinese goods.

Therefore, US actions based on the Senate bill would hardly help the US get rid of its trade deficit.

It is best that the US take domestic actions to address its domestic economic problems, rather than make a scapegoat of other countries and potentially unleash new trade wars.

The author is executive director of South Centre, a think tank of developing countries, based in Geneva.