A year ago, China Daily gushed with upbeat epithets about the cooperation between the U.S. and China. The relationship was already effective and smooth on trade, Taiwan and global warning. With two firm multilateralists, Barack Obama and Joe Biden, now in power, it would be positively strengthened and constructive, the official mouthpiece opined.

How different the picture looks today -- and how wounded the official tone. China sent a deputy foreign minister to negotiate with Mr. Obama in Copenhagen, scuppering the deal that not just the U.S. but many other countries wanted. Next came the cyber-attacks on Google. Then the White House approved a decision to sell patriot missiles to Taiwan, announced that Mr. Obama would meet the Dalai Lama and lectured China on its overvalued currency. Forget the metaphor of resetting relations, which the U.S. used recently with Russia. Hardly a month goes by when the U.S. and China can resist pushing each other's buttons.
Is China's assertiveness and Mr. Obama's hardened attitude all down to economics -- to the former's impressive performance during the global recession and the latter's much weaker one? Economists reckon the Chinese currency, which has remained at the same value since July 2008, is undervalued by 25% to 40%. Even on the lower figure, the effect of a correction on the currencies of neighbors like Malaysia, Singapore, and Taiwan would be major and would collectively help cut the U.S. deficit by $100 billion and create 700,000 jobs. Reopening the battle with China over its currency is not a bad move, therefore, as Mr. Obama faces difficult midterm elections in November. Both the U.S. and China are trying to power their way forward with export booms and each requires a low valuation of its currency to do that.
But politics matter too. China's foreign policy has become more assertive as nationalism becomes dominant. For all the lip service to multilateralism, China is more hostile to sanctions on Iran than Russia. A nationalist China is, however, more tied into the global economy than ever before. Two-thirds of China's $2.4 trillion currency reserves are held in dollars. If it dumped the U.S. treasury bonds and shares in which these dollars are invested, China could trigger a collapse of the dollar, and world markets, and another global recession. To whom would China be able to export then? Certainly not to the U.S. or the EU. China's key economic interest lies in continuing to fund U.S. debt.
So there are limits to the current U.S.-China jousting. Each is repainting its red lines and stepping over the other's. But at some point national interest says this must stop. Neither of the tetchy twins can do without the other