Audio Transcript:

China has hit back at the US a day after President Barack Obama promised to take a tougher line with Beijing over currency and trade. Ties between the US and China have been strained over an arms deal with Taiwan. Tensions have also risen over a planned visit to the US by the Dalai Lama. The World's Matthew Bell takes at look at how strained US-China relations really are.

KATY CLARK: I'm Katy Clark. This is The World. The value of China's currency is a hot topic in Washington these days. U.S. officials believe the Chinese currency is undervalued against the dollar. That may be the cause of a trade imbalance between the two countries. We buy more Chinese goods because they're cheaper, and the Chinese buy fewer American products because they're too expensive. But the Chinese don't buy the argument. The currency squabble is among a number of issues putting stress on Washington's relations with Beijing. The World's Matthew Bell reports.

MATTHEW BELL: China is not happy with the Obama Administration, not happy about a pending weapons sale to Taiwan, not happy about the President's plans to meet with Tibet's spiritual leader, the Dalai Lama, and not happy that China once again finds itself in the crosshairs of members of Congress over trade policy.

ARLEN SPECTER: We have lost 2,300,000 jobs as a result of the trade imbalance with China.

BELL: That's Pennsylvania Senator Arlen Specter speaking at a meeting yesterday between Democratic Senators and President Obama. Specter, who happens to up for re-election in a state hard hit by job losses, said China is guilty of international banditry. And he asked President Obama what he's planning to do about it.

SPECTER: China has not lived up to its obligations to have its markets open to U.S., but take our markets and take our jobs. Will you support an effort to revise, perhaps even rovoke that bilateral trading which gives China such an unfair trade advantage?

BELL: The president said no, he wouldn't go that far, but he did promise to address the issue of currency rates as part of a broader strategy.

PRESIDENT OBAMA: The approach that we're taking is to try to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways.

BELL: If that was meant to be a warning for Beijing, the Chinese government wasted no time in responding. Today, foreign ministry spokesman Ma Zhaoxu rejected the accusation that China's currency rates give it an unfair trade advantage.

MA ZHAOUX: [Speaking Chinese]

BELL: He said trade cooperation between the U.S. and China is mutually beneficial, and that accusations and pressure do not help. The Obama administration finds itself confronting China on other big issues as well. Climate change and Iran's nuclear program are two more points of disagreement, but does it all add up to a crisis for U.S.-Chinese relations?

JOHN POMFRET: I don't think U.S.-China relations are falling off the cliff. In fact, I think this is sort of the new normal between the United States and the People's Republic of China.

BELL: John Pomfret has covered China for years. He's a diplomatic correspondent for the Washington Post and the author of Chinese Lessons.

POMFRET: I don't even think this whole narrative that the Obama Administration is starting to get tough with China is true either because the Obama Administration spent its first year trying to set a good foundation in relations with China. Whether they succeeded or not is an open question, but they tried. But they always knew and they always told the Chinese that these problems currencies, Taiwan arms sales and the Dalai Lama were going to be confronted at a certain point. And we're confronting them now, and the problem is we're confronting them now at the same time.

BELL: Past U.S. presidents had more leverage with Beijing than President Obama does. China expert Andrew Nathan at Columbia University says that has a lot to do with the financial crisis.

ANDREW NATHAN: That financial crisis does really put us in hock to the Chinese because they are continuing to lend us money. Now, it would hard for them to not lend us money. They actually need to lend us money. They have to put their money some place and there is no place else really to put it. So it's a kind of scorpions in a bottle situation. We each need each other.

BELL: That maybe but this is an election year and the U.S. economy is still struggling mightily. And that means American politicians are all the more likely to keep raising the issue of jobs and the trade imbalance with China in the coming months. For The World, I'm Matthew Bell.