Ask US politicians to list their greatest desires and a revaluation of the renminbi is likely to come only slightly below universal democracy in the Middle East and a miraculous disappearance of the social security problem. The ballooning US trade deficit has raced up the political agenda over the past year and China has once again become everyone’s favourite whipping boy. As a result, last week’s obliging remarks from the People’s Bank of China – stressing the importance of exchange rate flexibility – should have gladdened the hearts of US policy makers.

But even if China does break with tradition and follow its recent rhetoric with a prompt and significant revaluation of the renminbi, this is unlikely to reduce the US deficit as much as many American policy makers assume. Most of the low-end goods China excels in vanished from US shores long ago. About half of Chinese exports to the US fall into three categories – office machines, clothing and footwear, toys and other plastic goods – that represent just 4 per cent of US production. A revaluation of the renminbi, therefore, may end up helping Mexico more than the US. An even worse scenario for the US is that China remains the lowest-cost producer of some goods even after a 15 or 20 per cent revaluation. The US might then end up simply paying higher prices for those items, pushing up inflation and even the trade deficit.