The Economist lays down the situation rather well:

In a written response to questions from senators debating his confirmation, {Treasurer-nominee} Mr Geithner accused China of “manipulating” its currency and promised that the Obama team would push “aggressively” for Beijing to change its policies. The sharp tone and use of the legally-loaded term “currency manipulation” ricocheted through financial markets as investors shuddered at the prospect of a Sino-American spat in the midst of a global slump.

The article goes on to describe the legal ramifications of officially accusing a WTO member of currency manipulation and warns against the Obama administration following such a policy. This statement by Geithner, which had to be Obama’s view and policy as well, forebodes a possible conflict between DC and Beijing. Geithner’s statement needs to be seen with Obama’s campaign rhetoric against free trade and the promotion of saving American jobs. The Chinese were listening then and they are surely listening now. The dire economic climate had led to protectionist calls by American citizens, elected officials, Democrat and Republican alike, and Obama could use his inaugural popular bounce to promote and further policies such as this if he chooses.

"Watch Out Geithner! The Chinese are Right Behind You! Just say 'Massaging'"

The Bush administration, just like Clinton’s before him, disapproved of China’s undervalued Yuan and used unofficial methods to get them to bring it up relative to the dollar with little success. However, the Bush and Clinton administrations were able to institute this policy push rather smoothly while keeping overall relations on a positive level. With the global economy still hemorrhaging, the last thing we need is a DC-Beijing economic dispute that would further rattle world markets and possibly constrain trade between the world’s two biggest trading partners.

I want the Chinese to higher the value of their Yuan as much as the next American, but the Chinese government has not responded well to this type of pressure in the past and I doubt they’ll start now, especially as they have their own domestic order to worry about. Sec of State Clinton had a productive opening talk with her Chinese counterpart, Foreign Minister Yang Jiechi, on Friday and both pledged to work together in a cooperative manner. Let’s hope so.

We must not take the last decade or so of peaceful and productive Chinese-US relations for granted. The relationship between the world’s two greatest economic powers is a vital one, but one also filled with possible conflict, conflict that could have dangerous repercussions around the globe. I support a strong, measured US stance in its relations with China, but I would suggest to tread lightly, Mr. Obama.

Tags: Bill Clinton, Bush, China, currency manipulation, Hillary Clinton, Obama, Tim Geithner, Treasury