In its first statutory, semi-annual report on foreign currency practices, the Obama Treasury Department refrained from designating China a “currency manipulator,” further affirming the view that an aggressive, sticks-only approach to the bilateral trade relationship advocated (mostly) by campaigning politicians is simply untenable. After serving more than 5 years as a great source of bilateral trade tension, the Chinese currency issue is dead.

Senator Obama and presidential candidate Obama both talked tough about Chinese currency practices, identifying an undervalued yuan as a source of unfairness to U.S. producers and an important cause of the bilateral trade imbalance. Treasury Secretary-designate Geithner, during his confirmation hearing in January, reiterated President Obama’s commitment to dealing with the issue before the Senate Finance Committee:

President Obama - backed by the conclusions of a broad range of economists – believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices. While in the U.S. Senate he cosponsored tough legislation to overhaul the U.S. process for determining currency manipulation and authorizing new enforcement measures so countries like China cannot continue to get a free pass for undermining fair trade principles.

Those who relied on hyped-up media accounts of Geithner’s testimony, which generally homed in on the terms “aggressively,” “tough,” and “enforcement” in the above passage to imply that Obama would take action against China on this matter, are probably utterly surprised that Treasury balked yesterday. But those who read the rest of Geithner’s response to the question may have noticed this broad canvas for inaction:

The question is how and when to broach the subject in order to do more good than harm. The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment.

Those last two sentences of Geithner’s response contained the answer—nearly three months beforehand—to the question of whether Treasury would label China a manipulator. And, taken in its entirety, the response is a perfect summation of the distinctions between criticizing policy as a challenger and being responsible for policy as the guy in charge. You can talk tough as a challenger because you don’t have to account for the consequences of your actions. But when you are responsible for the consequences of potentially incendiary policy changes, circumspection is a rediscovered virtue.

As President Obama knows by now, the consequences of simply labeling China a “currency manipulator” (let alone attempting to do something remedial about it) would undermine broader U.S.-China relations, invite recriminations, inspire potentially adverse policy changes in China, and would inject heaps of uncertainty into global currency and financial markets. Besides, as yesterday’s Treasury report concludes, the yuan continues to appreciate against the dollar, the government’s accumulation of foreign reserves has decelerated, and policies are in place to encourage greater domestic consumption in China and to reduce the economy’s reliance on exports.

I remain hopeful that this distinction between Obama the president and Obama the candidate will become and remain evident in U.S. trade policy more broadly.