China has achieved its economic miracle through exports — producing far more than its people consume. The United States is its biggest market. Further, China accumulated $2.3 trillion in reserves and plowed much of it back into U.S. government bonds.

When the global boom went bust, the United States cut interest rates to zero and began running a fiscal deficit of 10 percent of gross domestic product. This made the dollar vastly cheaper, but China, to protect its export industries, responded by linking its currency to the plunging buck. Thus, U.S. exports are not growing as much as they would otherwise, and neither are those of other countries in Asia. China, meanwhile, evinces anxiety about its dollar-denominated assets, and U.S. leaders try to deal with having a distant, militarily powerful and authoritarian state as their banker.

Economically, the solution is obvious. China must increasingly grow by producing to meet domestic demand; the United States must live within its means. Both sides have made some headway. China has plans to build hundreds of new hospitals and pension reforms, reducing the need to save for old age, are said to be on the way. In the U.S., private savings have risen from minus 2.1 percent of GDP in the last quarter before the recession to 6.2 percent now. But more action is needed.

For Washington, the best approach is to continue pointing out the costs and contradictions of China’s policy — while taking charge of its own destiny. Given the current fragility of the U.S. economy and the 10.2 percent unemployment rate, it would be unwise, both for the United States and China, to tighten monetary policy and slash the budget deficit immediately, as some Chinese commentators have demanded. But, by beginning work now on credible “exit strategies” for fiscal and monetary policy, the United States could undermine China’s beggar-thy-neighbor currency stance and ensure the long-term stability of the dollar.

(This editorial originally appeared in the Washington Post.)