Obama Administration Could Toughen Stance on China

There have already been several changes in the administration, but the jury's still out as to how the new president will deal with China.  

Although relations between the two countries are now strong, there are some early indications that political and financial difficulties could strain this partnership.

Fundamental political differences between the two countries are nothing new, and the censoring of Obama's inaugural address by Chinese media probably didn't come as a shock to anyone.  Phrases promoting political dissent and bashing communism are not exactly music to the ears of Chinese government officials.

When it comes to the U.S. and China, however, political leaders have been able to put aside their philosophical differences for the sake of mutual collaboration.  But in today's economic climate, mutual financial interests, one of the strongest ties holding this marriage together, are not as strong as they have been in the past.

Yesterday’s confirmation hearing of Timothy Geithner, the nominee for Secretary of the Treasury, signals that the Obama Administration is not afraid to challenge the status quo of this relationship.  

Geithner told the Senate Finance Committee that the president “believes that China is manipulating its currency, and that he will "use aggressively all the diplomatic avenues open to him to seek change in China's currency practices."

These comments aren’t exactly shocking, since Obama spoke out against the Chinese currency valuation while in the Senate.   Not surprisingly, however, Chinese leadership doesn’t quite plan on adopting the same strategy.  

China’s slow GDP growth rate and lagging exports will most likely cause China’s leadership to maintain the status quo, or even devalue its currency.  If China increases its value, exports become more expensive, and will probably continue to drop.  In today’s global market, it could be extremely devastating to the Chinese economy.

At the same time, many U.S. manufacturers already feel that they’re losing out to China.  On the other hand, U.S. consumers actually benefit more from China’s artificially low currency, since it enables them to buy cheaper goods.

While Geithner’s statements could indicate a change from the previous, more gentle China policy of the Bush administration, it’s difficult to know exactly how the growing protectionist sentiments in both China and the U.S. will impact relations.  

In any case, it’s quite possible that there could be growing tensions in the upcoming months.