The angry statements about currency manipulation continue, with anger focused on China’s renminbi. It is not the only country to intervene, but the scale of its action and the size of its trade surplus make it an obvious target. An excessive focus on the renminbi will soon make a bad situation worse, however, especially for China. As Premier Wen Jiabao’s testy statement last week in Europe revealed, for all its growth China’s economy remains unbalanced and vulnerable to deterioration in its trade account.

There are many ways for China to rebalance, although all involve transferring income from producers to households, so the latter can increase their share of consumption. Raising the value of the renminbi increases household income by reducing the cost of imports, although it also lowers the profitability of exports. The result, if done carefully, should nonetheless see the household share of China’s gross domestic product rise, and with it consumption. Since more of what China produces is then consumed domestically, China’s trade surplus should fall too.

But what would happen if China raised its currency too quickly, as most of its trading partners want and as Premier Wen warned against? In that case, the profitability of the export sector would decline so quickly that exporters would be forced either into bankruptcy or into lower-wage countries. They would fire workers, who would then consume less. So China faces a choice: rebalance speedily with high unemployment, or slowly with low unemployment.