China and the US in a Delicate Dance

How bad will the Chinese economy get in 2009? And will there be a currency war with the US? The two critical questions are interlinked. Unless China's domestic stimulus starts to work soon, the leadership is likely to dig in its heels and resists pressure for further appreciation of the currency. In which case expect the tougher line indicated by new US Treasury Secretary Timothy Geithner, backed by a president still in a honeymoon phase and expected by the electorate to achieve a lot in a short time, to lead to tensions and possibly retaliation.

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