The journalistic sport of the weekend was generating lots of column inches about the US-China diplomatic dance over the RMB and Iran sanctions. Wonderful story. You have the ominous problem of nuclear proliferation and upcoming multilateral meetings focused on Iran. Then there’s the value of the RMB, repeated rhetorical and legislative threats over the issue by the U.S. Congress, and the April 15 publication deadline of the U.S. Treasury report, the U.S. government’s opportunity to label China a “currency manipulator.”

Very exciting. The narrative up to this point has been a slow-motion train wreck. Will the U.S.-China relationship continue to worsen? Will there be a trade war? Who will benefit, who will suffer? Someone call a famous economist for a satellite interview, quick!

And then something changed on April 1, and we have a new media frenzy:

[T]he announcement by Chinese authorities on Thursday that President Hu Jintao will be visiting Washington in two weeks is being seen as the beginning of a possible easing of the friction over the renminbi.

China experts said it was unlikely that China would have agreed to the visit unless there was at least an informal assurance by the Treasury Department that it would not be named a currency manipulator either on or around April 15 — the deadline for the Obama administration to submit one of its twice-a-year reports on foreign exchange to Congress.

At the same time, economists say the visit, and other Chinese moves, suggest China is finally willing to let the renminbi increase in value.

Is that cool or what? A possible diplomatic breakthrough, a secret behind-the-scenes deal, palace intrigue, probably some adultery going on somewhere (I’m extrapolating). I started getting chills down my spine immediately, although that might just have been the result of the heat in my building being turned off recently.

What was the most exciting part of the story? Well, obviously, for the journalists among us, all of the “new” articles and Op/Ed columns being written could use the same old statistics and expert reax quotes that have been used for the past six months or so. Just write three or four new paragraphs, add on the old stuff, and you get to leave work early that day. Not bad, not bad at all.

Also exciting have been all those follow-up pieces confirming the details, many of which have characterized the new developments as a “thaw in relations” and a success for President Obama:

A thaw in relations between the US and China appears to be under way after months of strain between the superpowers[.] (The Guardian)

The visit by Hu was regarded as a litmus test for the state of relations by Washington, which feared he might boycott the summit in protest over arms sales to Taiwan and other causes of tension. (The Guardian)

Tensions between China and the United States have ebbed significantly in recent days, with the countries now working together to deter Iran’s nuclear ambitions and with the Obama administration backing off a politically charged clash over China’s currency. (New York Times)

You get the idea. The Google Machine has a lot of other examples that are easy to find. So the new narrative is this: bilateral relations are now on an upswing after China agreed to participate in Iran sanctions dialog and the U.S. agreed to delay the Treasury Report, giving the PRC sufficient time to revalue the RMB before U.S. politicians lose patience. Kudos to Obama for brokering this understanding and moving the process forward.

I’m not so sure. It’s a good story, and it might be true. No one knows for certain how this is all going to work out.

Six months from now, there might be a tough Iran sanctions deal on the table and Beijing might have revalued the RMB significantly, avoiding a U.S.-China trade war. Both sides would benefit. That’s one possibility.

Alternatively, Obama might be getting played.

Obama’s chief concern at the moment seems to be Iran. If China goes along, then he will get what he wants. So is China serious about Iran sanctions?

Iran and China agreed during talks in Beijing that sanctions “have lost their effectiveness,” chief Iranian nuclear negotiator Saeed Jalili said on Friday after meeting senior Chinese officials. (Reuters)

If a “reassurance” meeting was necessary, then perhaps China really is serious about participating in talks. On the other hand, a lot could happen between now and the conclusion of a sanctions agreement, and the language can be so watered down that the sanctions could be rendered meaningless.

I’ll have to call an “I don’t know” on that issue, but since I’m a cynic, I will be surprised if China ultimately goes along with tough sanctions against one of its principal commodities suppliers. A very persuasive article on why China will not agree to sanctions, by CNN’s Jaime Florcruz, can be read here.

China wants the D.C. rhetoric over the RMB, and threats of punitive legislation, to end, at least temporarily. Does postponing the Treasury report help Beijing?

Of course. Although members of Congress like Schumer, Specter, Graham and others will not shut up, they will play ball with the administration, knowing that the Iran issue is sensitive. The Treasury report was a rallying point, much like the old PNTR process was, and with it out of the picture, things will die down for a while.

So where will we be a year from now? Obama will be a winner if:

1. Effective sanctions against Tehran were put into place.
2. China significantly revalued the RMB.
3. A trade war was avoided.

Beijing will be a winner if:

1. Iran sanctions were either not passed, or if they were, Beijing received waivers.
2. The RMB was revalued slightly, just enough to silence critics.
3. A trade war was avoided.

Seems to me that a lot is riding on the value of the RMB in the short run. Beijing has won itself some breathing room but is still against a sharp, one-off revaluation. If it goes ahead with a small upward move, Obama would find it difficult to then move forward with a Treasury report that names China a currency manipulator, and if it does, China would fire back with even more hurt outrage than usual, in essence saying “We worked with you in good faith, and you betrayed us.” Bad PR for Obama.

With a small revaluation, Obama might be forced to declare “victory” and quietly tell China critics that nothing else will happen this year aside from empty anti-China campaign rhetoric. Obama could still come out OK if he gets real sanctions on Iran, but again, that seems like a long shot.

So where are we now? Has there been a great thaw in U.S.-China relations or has Obama been played by a canny Beijing that is thinking several steps ahead in the great game?

We’re now in the “wait and see” phase and should be looking at two things: the value of the RMB in 2010 and whether the tough rhetoric against Iran ultimately results in real sanctions to which Beijing has agreed.