Inevitably the question of China's currency has been dragged into the US election campaign. The problem is the short-sightedness of US labour and manufacturers - they need to be careful what wish for. The benefits of a more "level" playing field in currencies would be far out weighed by the giant crashing of not just China but likely much of Asia and potentially the world's economy. And I'm not being melodramatic for the sake of it.

Firstly it should not be surprising that China has a comparitive advantage in manufacturing. The combination of capital that has flooded the country with the vast pool of cheap labour naturally leads to an ability to better compete. Secondly the bleating about unfair exchange rates with Japan in the 1980s achieved little, especially when Japan's bubble burst and then endured 14 years of stagnation. Thirdly China and Japan are the two largest purchasers of US Treasury bonds; these purchases have added to demand for this paper and thus kept interest rates low. This in turn helped supported the great mortgage refinancing wave that kept the US economy afloat during the recession of 2001-3, along with the Feds extra-ordinary money printing efforts. China doesn't seem to get much thanks for that.

All that aside there is one major factor in floating the yuan that is often overlooked: it would lead to the meltdown of China's financial system. Beijing recognises the mess its banks are in and is working to set things right. But it is impossible to undo literally decades of poor lending decisions and bad loans. It takes a combination of banking reform, law reform, introduction of proper credit and risk controls, rooting out corruption, creating enforcable property rights and battling cultural norms (eg the common practice of favours for the well-connected) and more besides. Indeed reforms and bad habits continue side-by-side, especially with the provincial banks that are dominated by provincial Governments. Until recently China's concept of banking was a piggy bank directing Government money as the Government dictated. Pricing (ie interest rates) was often not a factor at all. The system is a mess but a vital cog in China's economic machinery.

At the same time China has been the world's major source of economic growth in the past few years. It has accounted for as much as 1/4 of all the increase in the world's economic growth in the past few years. It can be argued that China actually helped stave off an even more forceful readjustment in US manufacturing with its strong and rapid growth.

As is so often the case, what you don't hear in this debate is from the winners in the US. There are two sides to every coin. The major beneficiary in the USA of China's cheap exports have been US consumers. Wal-Mart alone brings in US$8 billion of products from China a year. It doesn't bring in product that it doesn't think it can sell. So the US manufacturing lobby is asking for two things: a deliberate crashing of one of the world's major sources of growth, a country that has been able to lift huge numbers of people out of poverty in the most widespread and rapid gathering of better living standards in history; AND it wants US consumers to pay more for goods and services so it can subsidise manufacturing, plus likely higher interest rates and/or the prospect of slower economic growth to boot.

Sometimes self-interest can do more harm to yourself than good.