Few Treasury secretaries have endured rougher starts than Timothy Geithner, whose tax troubles and mixed record at the New York Fed left the Senate with lukewarm feelings about his nomination–he was confirmed, but 34 senators registered their disapproval by voting against him. Geithner made a number of political missteps on the rocky road to confirmation, but his harsh rhetoric on China was a calculated crowd-pleaser: Much of the Senate shares Geithner’s zeal for branding China a currency manipulator. Whether the rest of the country should share that enthusiasm is another matter.

Last week, in written testimony for his confirmation hearings, Geithner stated that President Obama “believes that China is manipulating its currency.” Manipulation is a term of art in these matters, one the Bush administration diplomatically avoided using. If Treasury finds that a country is engaged in currency manipulation in order to gain an “unfair” trade advantage, the ruling triggers a process that could end in punitive trade sanctions. Geithner’s words prompted angry denials from Beijing, and the price of Treasury bonds fell–meaning that it got more expensive to finance the federal deficit–as investors contemplated the potential fallout.

Obviously, Geithner’s declaration was imprudent from an economic point of view. China holds more U.S. debt than any other country. When the U.S. looks to borrow money to finance deficit spending, it turns to China first. The Congressional Budget Office expects the United States to go $1.2 trillion deeper into debt next year–and that is before factoring in the cost of the $825 billion (and growing) stimulus package. If Obama wants fiscal stimulus, he’ll need Beijing’s help borrowing the money.

But from a purely political standpoint, Geithner’s statement made sense. The past five years have seen a raft of anti-China legislation proposed in the Senate, most of which has addressed the issue of China’s currency. Certain business groups have argued for years that China makes its exports cheaper by keeping the value of its currency artificially low. In response to their complaints, lawmakers have proposed the imposition of tariffs on all imports from China until it lets the value of its currency, the renminbi, go higher.

Are these lawmakers correct to be concerned? The short answer is: no. First, by acting to keep the dollar strong relative to the renminbi, China is to some degree conferring a subsidy on U.S. consumers. In any case, China’s critics have exaggerated the extent of that subsidy, pointing to China’s large trade surplus with the U.S. while ignoring the fact that China has allowed the renminbi to appreciate vis à vis the dollar by 20 percent since 2005–with no discernible impact on the bilateral balance of trade. Washington Post columnist Sebastian Mallaby recently argued China’s manipulation of its currency “is arguably the most important cause of the financial crisis.” But Albert Keidel, an expert on Chinese exchange-rate issues with the Carnegie Endowment for International Peace, counters that this view is attractive but flawed. It doesn’t explain the fact that demand for Chinese imports remained steady even as the renminbi was appreciating. Keidel also explains that “China’s global trade surplus [which he believes is the more revealing number] didn’t really take off until ’05. By then, the trends in our housing market in subprime marketing and securitization were already well in train.”

At least Mallaby does not endorse trade sanctions against China; the same cannot be said of China’s critics in Congress. Sens. Lindsey Graham and Chuck Schumer have sponsored legislation that would call for a 27.5 percent tariff on all Chinese imports if Treasury brands Beijing a currency manipulator. Such a tariff would immediately increase prices on a wide swath of directly imported goods, and would have a residual effect on the prices of American goods manufactured using Chinese components. China would undoubtedly enact retaliatory tariffs, blocking access to our fastest-growing export market.

These measures are being pushed by a minority of the U.S. business community that is adversely affected by Chinese competition. Erin Ennis, vice president of the U.S.-China Business Council, says the value of China’s currency is “not the top issue for the majority of the business community, though there are parts of the business community that view this as very important.” Her organization’s highest priority is making sure policymakers maintain an open dialogue with China. The U.S. and Chinese economies, she says, “are sufficiently integrated that we can’t find an answer on our own.”

Fortunately, Secretary of State Hillary Clinton (now there’s an odd thing to say) has announced that the Obama administration will continue the strategic dialogue that former Treasury secretary Henry Paulson put in place. In addition, Ennis is optimistic that Congress will give Obama a chance to lead on China issues. “It would surprise me if Congress decided to preemptively act,” she says.

Senators Graham and Schumer told Reuters Wednesday that they found Geithner’s hard line on China encouraging. Graham, however, said that “if the countries can work out a voluntary program, that would be better than legislation. But if that doesn’t work, we’ll have to do something–do legislation.”

Our relationship with China is fraught at the moment, and a bunch of protectionist lawmakers charging in and making a hash of things is exactly what Obama doesn’t need right now. With that in mind, Geithner’s seemingly impolitic remarks start to make political sense after all. For a large number of Democrats in Congress (and a handful of likeminded Republicans), curtailing trade with China is a top priority. Managing their concerns without wrecking the economy will be one of Obama’s most difficult challenges in the years ahead.