China has succumbed to hubris. It has mistaken the soft diplomacy of Barack Obama for weakness, mistaken the US credit crisis for decline, and mistaken its own mercantilist bubble for ascendancy. There are echoes of Anglo-German spats before the First World War, when Wilhelmine Berlin so badly misjudged the strategic balance of power and over-played its hand. Within a month the US Treasury must rule whether China is a ‘currency manipulator’, triggering sanctions under US law. This has been finessed before, but we are in a new world now with America’s U6 unemployment at 16.8pc. ‘It’s going to be really hard for them yet again to fudge on the obvious fact that China is manipulating. Without a credible threat, we’re not going to get anywhere,’ said Paul Krugman, this year’s Nobel economist. China’s premier Wen Jiabao is defiant. ‘I don’t think the yuan is undervalued. We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency,’ he said yesterday. Once again he demanded that the US takes ‘concrete steps to reassure investors’ over the safety of US assets. ‘Some say China has got more arrogant and tough. Some put […]