Treasury Secretary Tim Geithner has gotten out of China with his skin intact, but just barely. Geithner wrapped up his two-day trip with the announcement that the two sides will meet again in Washington on the week of July 27. Chinese officials, Geithner said, had voiced "justifiable confidence in the strength and resilience and dynamism of the American economy."

The Chinese, apparently, have odd ways of expressing confidence. China has been complaining publicly for months about the prospect of its vast dollar holdings declining in value as a result of all the dollars the U.S. has been printing since the start of the financial crisis last year. At present, neither China nor the U.S. has the power--or at least the political will--to modify the terms of the relationship. As the economist Simon Johnson writes at Baseline Scenario, "If one country wants to run a current account surplus that is big relative to the international economy, then someone else has to run a deficit--it’s a zero sum game because 'reserves' are a claim on another country (preferably a strong one, with a convertible currency). No one has ever offered a guarantee on the real value of reserves, i.e., what China now wants."

The relative positions of the U.S. and China are thus locked in for the foreseeable future: The U.S. will keep printing dollars and issuing debt, and China will keep buying a large portion of it. Meanwhile, China's efforts to keep its own currency from rising in value--which would hamper its export-based economy--only helps to preserve the dynamic. This has led a lot of economists to wonder, first, what China is trying to accomplish by questioning the stability of the dollar and pushing the U.S. for guarantees on Chinese holdings, and second, why the U.S. is frightened. (The aforementioned Simon Johnson wrote one such piece just before Geithner's trip.)

It makes more sense to view China's actions through the lens of global politics than global economics. China is demonstrating to the world that it holds more leverage than ever over the United States. During the Geithner trip just past, for example, the secretary of the U.S. Treasury was forced to make remarkable, and remarkably specific, concessions about future American deficit-reduction efforts. When was the last time the United States had to go, hat in hand, to any foreign power to plead for clemency publicly?

As coming-out parties on the world stage go, this beats the hell out of the elaborate Olympic opening staged in Beijing last summer. The world, you best believe, is taking note.

See also: Bloomberg, "Global crisis 'inevitable' unless U.S. starts saving, Yu says," and "Treasuries, dollar 'only game in town' as China buys."