This spring I argued it would be a mistake for the administration to declare China a currency manipulator or adopt a more aggressive line against its, er, currency manipulation. I said that remaining patient would get better results. Soon after, I thought this line was vindicated when China said it would loosen its RMB peg to the dollar. On the contrary, since then the exchange rate has hardly budged, and it is those who said appeasement would fail who are vindicated. In a new column for the FT, I argue that the US needs to ratchet up the pressure--but still cautiously.

The emphasis should still be on orderly multilateral arrangements rather than unilateral action. Through the IMF and the WTO, the US and Europe can aim to gratify China's desire for a bigger leadership role, while binding all countries to firmer rules on currencies and other policies with international spillovers...

Meanwhile, the US and other countries have a possible course of action at the WTO under existing rules which forbid "frustrating the intent of the provisions of this agreement by exchange action". They should organise to pursue it, and as part of that effort the Obama administration should formally deem China a currency manipulator - a decision it previously postponed (rightly, as I thought at the time) only to get nothing in return.

Since this falls short of immediate unilateral sanctions, many in the US will see it not as a measured escalation but as the continuation of appeasement by other means. Yet a balance must be struck. Firmer policy towards China is needed, but the risk of starting a cycle of retaliation and far greater mutual harm should not be dismissed.

This is a dangerous moment. It was splendid to see the Nobel Peace Prize go to the imprisoned Chinese dissident Liu Xiaobo - but with economic tensions on the rise, the timing gave me pause. How much pressure on China is too much? We may find out.