The Obama team’s charges about Chinese currency don’t make sense.

Many economists believe that the adoption of the Smoot-Hawley Tariff Act of 1930, which reduced imports and set off an international trade war, was a major cause of the Great Depression. Even an isolationist like auto pioneer Henry Ford felt that the bill was "economic stupidity."

With the U.S. economy now engulfed by its worst economic crisis since the 1930s, some commentators are finding seeds of a new and possibly damaging trade war in the statement by Treasury Secretary Timothy Geithner last week that China is "manipulating its currency" to gain an advantage in international trade. Geithner said that President Obama would use "all the diplomatic avenues open to him" to force China to change its currency policy. The White House on Monday clarified this to say that Geithner had merely reiterated Obama's position in last year's presidential campaign and that a formal determination of whether China was manipulating its currency would not come until the spring. But the damage was done: China angrily denied the charge, with Su Ning, vice governor of the People's Bank of China, countering that "these remarks are not only inconsistent with the facts, but they are misleading about the reasons for the financial crisis."

It was not a great way to begin a diplomatic relationship. Still, it's a fair question: Is China manipulating its exchange rate unfairly, and is the United States being damaged by Beijing's currency policies?

China does not allow its currency, the yuan, to be freely traded in foreign exchange markets, so technically Geithner is right that Beijing artificially sets its value. China used to set the yuan at a fixed rate against the dollar but ended the dollar peg—after pressure from Washington—in July 2005 and now allows the yuan to fluctuate by up to 0.5 percent per day against the dollar. That's still not free trade in the most technical sense, but look at the result: The yuan has gained 21 percent against the dollar since the dollar peg ended in 2005, so it's hard to argue the Beijing has acted in only its own interests.

Besides, the world currency markets have been in turmoil for the last six months, leading to a flight to the dollar worldwide. And plenty of other countries manipulate their currencies when it suits their needs. Just last week, the Swiss National Bank said it was preparing to intervene in the currency markets to stop the rise in the value of the Swiss franc against the euro. And Eisuke Sakakibara, a former top official of the Japanese finance ministry known to currency traders everywhere as Mr. Yen, predicted that Tokyo would intervene soon to reverse the rise of the yen, which touched 87.10 yen to the dollar last week, up sharply from 120 yen less than six months ago. A possible reason: Sony predicted $3 billion in annual losses because of the yen's strength. South Korea also said it was considering a depreciation of the Korean won after foreign trade slumped in the fourth quarter. Aren't those all currency manipulations by Geithner's standards?

So why single out China? What undoubtedly put Geithner's bull's-eye on China's back is the huge trade surplus that China earns from Western nations, especially the United States. Chinese customs officials reported that the country had a whopping trade surplus of $290 billion in 2008, up 18 percent from 2007. But look a little more closely at the numbers, and the explanation for that huge trade surplus is not growing exports but plummeting imports due to the impact of the world economic slowdown on China's domestic market. Shipments to the United States actually declined 4.1 percent in December and exports to the European Union, China's biggest export market, fell by 3.5 percent.