China's economic liberalization has helped spur investment and income growth, but China has recently been in balance of payments disequilibrium. While China has begun altering its longstanding fixed currency peg with the U.S. dollar, adjustments have been modest. With an exchange rate that may be about 50 percent undervalued, a significant change in the renminbi/dollar exchange rate is possible in the foreseeable future. Alternatively, China could maintain an essentially fixed nominal exchange rate for a number of years and allow the real exchange rate to change through adjustments in prices. Each strategy will have impacts for exchange rate policies in other Asian countries. This paper will examine the impact on world cotton trade and prices of alternative exchange rate strategies by China, incorporating the exchange rate responses likely by China's major economic partners and competitors.