Interdependence hurts. That is one of several uncomfortable messages arising from the trade spat between the US and China over tyres, poultry and car parts. Markets are rightly twitchy because trade disputes have a nasty habit of escalating. And such is the complexity of the two countries' trade and currency relationships that neither side can win.

Consider China's position. It has pegged its currency to the dollar at a highly competitive rate, yet is desperately unhappy about the vast pile up of dollars that results. Official reserves are reckoned to be close to $2,000bn, of which some 60 per cent are probably in dollar assets. The combination of a cheap currency and the downward pressure on US interest rates that ensues from this reserve accumulation prevents trade adjustment. It also contributes to retail and asset price inflation in China as it imports US imbalances and loose monetary policy.

The economist Barry Eichengreen points out in the latest edition of Foreign Affairs that exposure to the US currency creates pressure on Chinese officials to do something because it has become a domestic political flashpoint. China's foreign currency reserves amount to $2,000 per Chinese resident, equivalent to a third of the country's per capita income. That statistic must surely make them wince. Poll evidence suggests that most Chinese regard these dollar holdings as unsafe. Yet any attempt at significant diversification would seriously dent their value.