But what happens if China revalues the yuan too quickly? In that case, the profitability of the export sector might decline so quickly that exporters would be forced into bankruptcy or into moving abroad to lower-wage countries. Either way, they would have to fire workers, whose consumption would then decline.

This is the problem China faces. It must raise the value of the yuan as part of its rebalancing towards greater domestic consumption, but if it does so too quickly, the rebalancing will occur not as an increase in consumption relative to rising production, but rather as a drop in production relative to declining consumption.

China can rebalance with high unemployment as well as with low unemployment, and the difference has to do with the speed of the rebalancing. That is why too much focus on the currency is dangerous.

It is clear that the US has become impatient with the slow adjustment process in China, made all the worse by a European crisis that is almost certain to cause the European trade surplus to surge. Every major economy in the world is implicitly expecting US consumption to drive employment growth, as Premier Wen Jiabao suggested to President Barack Obama last week, but with soaring unemployment, the US is in no mood to divert its own demand abroad.

And so there is a good chance that the US will overreact, and will use the threat of tariffs to force the yuan to appreciate much faster than China can absorb. So what will China do?

Most probably, it will do the same thing Tokyo did after the Plaza Accords and Beijing did after the yuan began appreciating in 2005. It will lower real interest rates and force credit expansion.

This will have the effect of unwinding the impact of the yuan appreciation. As manufacturers in tradable goods lose competitiveness because of the rising yuan, they regain it because of even lower financing costs.

But there will be a huge hidden cost to this strategy. The revaluation will shift income from exporters to households, but lower financing costs will shift income from households (which provide most of the country's net savings) to the large corporate borrowers.

China won't really rebalance. Instead, the combination of policies will reduce Chinese over- dependence on exports and increase its even greater over-dependence on investment.

This will not benefit the country. It will fuel even more real estate, manufacturing and infrastructure overcapacity without having rebalanced consumption.

China and other surplus countries like Germany and Japan need to understand that their policies are causing real damage in the US, and the US needs to understand that the surplus countries simply cannot adjust fast enough to suit the US. An optimal solution will require real grown-up behaviour on the part of the major economies, which must agree to resolve the trade imbalances carefully and with determination.

Of course, grown-up behaviour is probably too much to ask from countries that have displayed so little of it to date. Instead, trade relationships will simply continue to deteriorate.

Michael Pettis is a professor of finance at the Guanghua School of Business at Peking University and a senior associate at the Carnegie Endowment