Before setting out on his latest trip to Beijing, US Secretary of the Treasury Henry Paulson was careful to play down any expectations that he could achieve a more rapid appreciation of the yuan. Instead of condemning him for this lack of progress on the exchange rate, American politicians should be congratulating him.
In a June speech to Washington-based Heritage Foundation, Mr Paulson poured cold water on US hopes for either a one-off yuan revaluation or a significantly faster rate of appreciation. He told his audience that Beijing prefers a gradual approach to reform and warned that US economic diplomacy towards the mainland would be a long-running process, even speaking of 'the objectives I have for the next 20 years'.
That is not nearly fast enough for Mr Paulson's critics, who argue that by holding down the value of its currency, the mainland is flooding US shops with artificially cheap imports and destroying American factory jobs. They dismiss the yuan's 9 per cent appreciation against the US dollar over the past two years (see chart) as insignificant and are demanding an immediate further 10 to 15 per cent revaluation of the currency.
Yet, although Washington's China-bashers are correct to say that the gradual appreciation of the yuan since July 2005 has done nothing to trim the size of America's bilateral trade deficit with the mainland, there is growing evidence that the yuan's rise is having another altogether less welcome effect.
In May, the US price of imports from the mainland rose for the first time since the Department of Labour began compiling data in 2003. The increase was small - just 0.1 per cent year on year - but prices rose again in June by a far heftier 0.6 per cent (see chart).
The switch from falling to rising import prices has prompted speculation that the mainland has begun to export its own domestic inflation to the rest of the world. But research by Sun Mingchun and Rob Subbaraman at Lehman Brothers in Hong Kong indicates that it is not mainland domestic price pressure which is to blame but the yuan's appreciation.
They point out that the mainland's domestic inflation rate of 4.4 per cent is driven almost entirely by food price rises. Prices of many manufactured goods are flat or falling. Domestic prices for clothing, for example, are down 0.3 per cent over the year to June.
In contrast, the US dollar prices of clothing exports from the mainland have risen by about 8 per cent over the past 12 months.
Mr Sun and Mr Subbaraman explain that because profit margins in the mainland textile industry are a meagre 3 to 4 per cent, mainland factories have no leeway to absorb yuan appreciation without raising their export prices. They note that the mainland's export unit value index for textiles - a proxy for export prices - rose by 3.7 per cent over the first half of 2007. The yuan was up by 4.1 per cent.
This correlation should worry US politicians far more than questionable arguments that the mainland is using a cheap currency to steal American jobs. With US unemployment close to its lowest level since the dotcom boom, the prospect of losing low-margin factory jobs to the mainland is not a big political threat.
Rising inflation, however, is. It's early days yet and the prices of imports from the mainland have only just begun climbing. But faster yuan appreciation will only amplify the inflationary trend. Before long, instead of criticising Mr Paulson for failing to secure a stronger yuan, US politicians could be thanking him.