Despite professions of friendship and cooperation in Washington and Beijing, U.S.-Chinese relations in the Obama era are off to a rocky start.  The most prominent cause of tension was an incident in early March in the South China Sea.  U.S.S. Impeccable, a “survey vessel” (spy ship) was conducting operations some 30 miles off the coast of China when several small Chinese vessels engaged in harassing behavior.  Washington protested China’s actions and sent a destroyer to protect Impeccable’s ongoing operations.  Beijing responded by sending a modern patrol ship of its own to show the flag.

On one level, the episode is merely the latest manifestation of a longstanding disagreement between China and the United States (and most of China’s neighbors) about the status of the South China Sea.  Beijing claims the entire area as an “exclusive economic zone” and has taken steps to establish a presence in the Spratly and Paracel islands, a chain of uninhabited reefs and atolls that experts suspect sits atop major oil and natural-gas reserves.  Washington, on the other hand, insists that the area is in international waters.  As the world’s leading maritime power, the United States opposes efforts by countries to lay claim to significant oceanic tracts.  China’s assertion of sovereignty over the South China Sea is especially worrisome because the area includes major sea lanes that are economic and strategic lifelines for Japan, South Korea, Taiwan, and other U.S. allies.

But the latest brouhaha between Washington and Beijing is about far more than the status of the South China Sea.  It reflects a changing power relationship.  In one sense, the United States and China have been in a similar situation before.  In April 2001, an ugly incident occurred in the air over the South China Sea when a U.S. spy plane collided with a Chinese air-force fighter and had to make an emergency landing on Hainan Island.  A tense period followed in which hawks in both countries demanded that their governments adopt hardline policies.  Cooler head eventually prevailed, however, and the crisis ended with a letter from Washington expressing “regret” for the episode (what American cynics described as a “non-apology apology”).

There are, however, important differences between the two incidents.  In 2001, the Bush administration soon retaliated with actions that caused Beijing more than a little discomfort.  Most notably, Washington promptly announced approval of the largest arms sale to Taiwan in nearly a decade.  U.S. political support for Taiwan’s new pro-independence government headed by Chen Shui-bian also increased markedly.  Chinese officials protested the direction of U.S. policy, but did little else.

This time, tangible manifestations of displeasure have come from Beijing as much as from Washington.  True, a congressional resolution, passed shortly after the Impeccable confrontation, expressing support for the Dalai Lama and the “plight of the Tibetan people” hardly seemed conciliatory.  Even less so was the Pentagon’s approval (just days after China dispatched her patrol vessel) of a contract for Lockheed Corporation to boost the capabilities of Taiwan’s fleet of antisubmarine P-3 aircraft.

But China’s primary response, although more subtle, was at least as confrontational.  It came in the form of a comment by Premier Wen Jiabao expressing “concern” about the “safety” of China’s holdings of U.S. government debt.  Most observers in the United States missed the principal import of Wen’s statement, concluding that he was warning against reckless U.S. government spending that could weaken the dollar and damage the value of China’s financial holdings.  That may have been one purpose, but Wen also was sending a reminder that Washington is heavily dependent on China to fund the soaring federal budget deficit, which is expected to exceed two trillion dollars this year.  There was an implication that Beijing’s willingness to continue financing America’s debt addiction might be jeopardized if U.S.-China relations soured.  And, clearly, they could sour over matters such as Taiwan or incidents in the South China Sea as easily as they could over trade or other economic issues.

In 2001, America was at or near the peak of her post-Cold War hegemonic status, with no credible peer competitor even on the horizon.  China was still in the early phases of a military modernization, and although she had made breathtaking economic progress over the previous two decades, she was far from being a serious competitor to the United States in any respect.  Equally important, America was in fairly solid financial shape.  The federal government was enjoying successive years of budget surpluses—something that had not occurred for decades.  September 11 was merely a date on the calendar, and the Iraq war was nothing more than a hopeful gleam in the eyes of a tiny number of neoconservative zealots.

Today, the Iraq War and profligate domestic spending have transformed America into a debt addict heavily dependent on China as her principal foreign banker.  Conversely, Beijing’s bargaining position has improved immeasurably since 2001, especially given her accumulation of more than two trillion dollars in foreign exchange reserves.

We are seeing the early signs of China’s attempt to use that increased leverage to weaken Washington’s geopolitical position in East Asia.  The South China Sea is the first episode.  It is not likely to be the last.