Leading article: America tweaks the Chinese dragon's tail

Washington appears to be hardening its stance towards China. Yesterday's White House meeting between Barack Obama and the Dalai Lama was the latest tweak of the Chinese dragon's tail by the US. It follows a recent sale of defensive weapons to Taiwan and a demand from the Secretary of State, Hillary Clinton, last month that China investigate allegations that it has been engaged in cyber attacks abroad.

Trade continues to be a major bone of contention between the two powers after last year's tit-for-tat tariffs and continued complaints from US manufacturers that the renminbi is being artificially held down in value by Beijing, giving Chinese exporters an unfair competitive advantage. China's naked obstructionism in the United Nations Copenhagen climate change talks in December did nothing to improve bilateral relations.

So was Mr Obama's decision to meet the Tibetan leader, ignoring China's furious objections, helpful? The answer is probably not – but it was nevertheless the right thing to do. The Dalai Lama is a respected spiritual leader, not the intransigent separatist of Beijing's propaganda. If Mr Obama had refused to meet him under Chinese pressure it would have represented a moral capitulation, especially in the light of the human rights abuses that continue to take place in Tibet under Chinese rule.

The question now is how much damage has been done by the meeting? The White House argues that the China-US relationship is mature enough to bear disagreement on some matters while finding common ground on important international issues. This sounds rather like wishful thinking. The reality is that there will be intense diplomatic battles between these two powers on a host of issues, ranging from trade, to defence, to Iran and climate change. And such is the divergence of outlook between the two nations that this tension will last for the foreseeable future.

Washington would, of course, be mad to adopt a belligerent policy on all these fronts. It needs to hold its nose and co-operate with authoritarian China if it hopes to realise any of its international agenda. China's power is real. And the US and others need to respect its opinion and influence. Yet Beijing is not as powerful as is often assumed.

The idea that China could punish the US by selling its vast holding of American bonds, for instance, is overblown. By investing its national savings surplus in US Treasury Bills, China has made itself vulnerable to a collapse in the value of the American dollar. It would lose just as surely as the US if it tried to punish America in this manner – perhaps more. And because China's economy is so heavily dependent on exports for growth, Beijing needs healthy markets in the West to absorb its products. It is true that the world needs the co-operation of China. But it is just as true to say that China needs the world.

The question of how to manage this uneasy relationship will be one of the crucial issues of this century. So it is just as well to get some ground rules in place. While the US must be prepared to work with China where it can, Beijing cannot be allowed right of veto over the White House guest list.

Washington has laid down a moral marker. It is an example that other nations, including Britain, should follow.