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A tough decision: Poke the dragon?

Next month, Obama must report on whether China is manipulating its currency.

An employee counts U.S. currency near renminbi notes at a bank in Hefei, Anhui province, Dec. 3, 2008. China is apparently shifting currency policy to permit depreciation of the yuan, a step to aid its slowing economy. (Stringer/Reuters)

WASHINGTON — On April 15, U.S. President Barack Obama must report to Congress on whether China, as evidence suggests, is manipulating its currency to gain a comparative advantage in trade, thus costing Americans jobs in these tough economic times.

With U.S. unemployment creeping toward double digits, the popular political path seems obvious. But China is an essential partner in many of Obama’s top foreign policy initiatives — such as limiting global warming, nuclear proliferation in Iran and North Korea, and Islamic terrorism. And as a major creditor, with deep financial reserves, China is a crucial part of the U.S. strategy to use an April 2 summit of 20 leading nations in London to jolt the world toward economic recovery.

As a result, Obama’s pending decision on whether to inaugurate his relationship with Chinese leaders with a blunt confrontation over jobs and trade is a telling example of how the global downturn can disrupt his foreign policy agenda.

“The arrival on the scene of the global recession brings with it … what could be fatally complicating factors” for some of Obama’s most important priorities, said Brookings Institution President Strobe Talbott. Global institutions will be torn by protectionism and other nationalistic impulses, he said, and nations will be so drained of “political will and resources” that there “simply won’t be enough left over” to deal with major crises.

“Our understandable preoccupation with the international economy,” Talbott said, may create “the temptation of triage,” possibly causing the postponement of time-sensitive issues like nuclear proliferation or climate change until it’s too late.

If U.S. policymakers spent much of the fall of 2008 trying to grapple with the repercussions of a domestic recession, they’ve spent much of 2009 coping with the stunning news that — for the first time since World War II — the world economy will not grow this year. Dennis Blair, the U.S. director of national intelligence, has warned that the danger posed by the resulting chaos is now America’s foremost national security threat.

“There was hope that the current downturn might be mainly an American experience, and so world demand could remain high and perhaps help pull us through,” Christina Romer, who leads the White House Council of Economic Advisers, said recently. “We have realized that hope was a false one. As statistics poured in, we have learned that Europe, Asia, and many other areas are facing declines as large, if not larger, than our own.”