Last month, Republican presidential hopeful Mitt Romney promised that, if elected, he would 'get tough' on China. Not only was Beijing was manipulating its currency, he said, but Chinese firms were also competing unfairly. He demanded tariffs to correct the 'uneven playing field'.
On both counts he is misguided, and if this is not just campaign rhetoric, he also risks widening an ideological chasm - a battle between the free marketeers and centralised-control theorists - from a position of weakness.
As we all know, the Chinese yuan is mostly tied to the US dollar, although Beijing has let its currency appreciate slowly in recent years. This has not been good enough for some American politicians, however, who have repeatedly demanded that the yuan be allowed to float freely. Yet there is a logic behind Beijing's policy. It makes sense for the Chinese government to tie the yuan to the dollar, first, as America is one of China's biggest trading partners.
Second, the dollar is the currency in which almost all global commodities are priced, from oil to gold and metal ores. So keeping the yuan closely tied to the dollar helps maintain economic stability.
Third, much of China's savings are held in dollars. If the yuan appreciates wildly, the value of these assets falls, costing the country billions. Finally, its banking system is not yet able to cope with the demands of a floating exchange rate.
America's accusations of currency manipulation also ring hollow. The US government has itself been manipulating the value of the dollar for the past few years by printing money and holding down interest rates. These policies are specifically intended to drive down the value of the dollar to help make America competitive again. What really upsets US politicians, it seems, is that China has largely thwarted these measures.
And when US politicians accuse Chinese companies of competing unfairly, they are also treading on squishy ground. For the past three decades, American economists and politicians have continuously banged the same economic drum. The free market was the best way - indeed, the only way - to compete, they said. Adam Smith's invisible hand should always be unrestrained. It is nature's way.