Less than a Week in Office and Obama is Already Poking China in the Eye

Obama refused to cut the corporate tax rate and now wants to start a trade war with China. This is a check his scrawny butt can't cash.

Barack Obama's choice as the next treasury secretary has fired the first shot in what could be a new protectionist battle between America and China.

Tim Geithner told US senators that Obama believes that China has been manipulating its currency, the yuan - an accusation that is likely to hurt relations between the two countries.

In written testimony at a confirmation hearing, Geithner said that "President Obama - backed by the conclusions of a broad range of economists - believes that China is manipulating its currency."

The former head of the Federal Bank of New York went on to tell the Senate finance committee that Obama will use "all the diplomatic avenues open to him" to push for changes in China's currency practices.

While it is an open secret that Beijing does take steps to manage the value of its currency, analysts warned that Geitner's comments risk disrupting the delicate balance between the two countries.

America is a hugely important market for China's factories, which have already suffered from the US economic slump. The flow of goods from east to west has meant China built up huge reserves of dollars and holds more US government debt, in the form of Treasury notes, than any other country.

The prospect that China might respond by selling some these assets off triggered a drop in the value of long-term US treasuries yesterday.