Can China Help Prevent a U.S. Tailspin?

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The market tumult in recent weeks has inspired some pretty dire readings of the U.S. economy’s future. With the country’s anemic growth prospects back in the spotlight after a jolting credit downgrade, the biggest concern now is that neither Washington nor the Federal Reserve has the ammunition to reverse what feels like a bottomless downward spiral. So where will the misery end? Even if the bickering in Washington continues and the maxed-out Fed lays low, some welcome relief — albeit in small doses — could come from a friendlier China.

China’s economy, after all, is still growing fast, albeit with rising inflation. Its trade surplus made its biggest jump in more than two years in July due to a surprising surge in exports, which rose 20.4% in July from a year ago. That’s a welcome sign that the global economy may have more steam than nervous investors have feared.

Of course, the stock market sell-offs over the past few weeks aren’t counted in those numbers, and China’s exports could slow in the next month or two. But its economy still grew at a 9.5% clip in the second quarter, beating expectations and raising some hope for stable growth to finish out the year. Even analysts who’ve predicted a sharp China slowdown, like Nouriel Roubini, assume the country will grow at robust speed for the next several years.  That’s welcome news for the U.S. and global economy, since it gives China more leeway to do what it can to prop up the stagnant recoveries weighing down the West. China would benefit too, since it still relies on the U.S. and Europe to fuel demand for its exports. Here are a few ways the Middle Kingdom could lend a helping hand:

Don’t raise interest rates. Investors worried about China fear its rapidly rising inflation, which could put a crimp on growth. China’s consumer prices rose 6.5% in July alone, the fastest jump since 2009. In response, China has been slamming on the breaks, raising interest rates five times since October to slow down lending and spending. If inflation cut too deeply into wages for Chinese workers, widespread political unrest could ensue. But with commodity prices easing, the cost of food — a big purchase for Chinese workers — is starting to simmer down. As a result, many economists think China will follow countries like South Korea and India in delaying interest-rate hikes. That would grease the wheels of global growth and keep global markets from plunging further. Already Chinese markets perked up after the central government hinted it would end its credit tightening spree.

(MORE: Stock Market Plunge: Can the Fed Do Anything?)

Let the yuan appreciate faster. China’s $31 billion trade surplus in July is an irksome reminder to U.S. officials of the advantages China reaps from its undervalued currency. China has repeatedly dismissed U.S. demands that it let the yuan appreciate faster, which would help boost the U.S. recovery by making its exports cheaper. Many economists think that, for the U.S. economy to get back on track, exports have to grow faster. Although only 10% of U.S. GDP comes from exports now, export growth has driven more than a third of the increase in U.S. GDP over the past year. Those gains are partially due to a falling dollar, fueled by fears about the U.S. economy’s future and the Fed’s bond-buying sprees. A faster appreciation of the yuan would only help a U.S. export bender. And as the Wall Street Journal points out, another round of quantitative easing could force China’s policymakers to pick up the pace, since the policy tends to send hot money from the U.S. abroad in search of higher-yielding investments. That would put upward pressure on China’s already high level of inflation, which nobody wants. That’s one reason why I’m not in favor of implementing QE3, but as a looming threat to egg on China’s yuan appreciation, it could help the recovery along.

(MORE: Who will save the global economy this time?)

Stop chiding the U.S. China followed S&P’s downgrade of the U.S.’s long-term credit rating with stern words about America’s profligate ways. Zhou Xiaochuan, the governor of the People’s Bank of China, urged the U.S. to act more responsibly in getting its house in order and threatened to keep diversifying its foreign exchange holdings away from U.S. dollars. Chinese rating agency Dagong Global added fuel to the fire by blasting U.S. officials about their unruly handling of the debt ceiling. Now, there’s no question China has cause for concern, with an estimated 70% of its foreign reserves held in U.S. dollars. But then, you make the bed, you lie in it. It’s worth remembering that China’s defacto peg to the dollar, which helped fuel its export boom, kept U.S. borrowing cheap, which perpetuated our drawn-out credit binge. So there’s plenty of blame to go around. No need for more hard language from Chinese officials until the whole world is back on track.

Roya Wolverson writes for TIME. Find her on Twitter at @royaclare. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.