The recently held U.S.-China strategic dialogue is now triggering fierce debate in both the countries. The U.S. Treasury Secretary Henry Paulson now seems to be heading towards a clash with the new Democratic-controlled Congress on China issue following his softened criticism of China’s currency policy. On the other hand, an official Chinese newspaper has accused Washington of meddling in Beijing’s policies and warned of potential problem that may threaten cooperation. In the U.S. Lawmakers lashes out on Paulson fiercely for failing to explicitly mention China a currency manipulator in its semi-annual foreign exchange report. The report maintained that China’s policy of limiting gains in the yuan is a distortion. The report has received severe criticism from all quarter including Lawmakers, Congress, Unions and manufacturer. However, despite immense pressure at home to pursue China to undertake currency flexibility reform Paulson was aware that a quick fix solution is not in sight. Nevertheless, Lawmakers are keen to put or place some additional tariffs and regulations to counter currency manipulation which can raise serious question regarding U.S.-China trade. The fierce criticism has raised the risk that Congress may endorse some punitive measures in order to pressurize China. However, any step in this direction can cause serious implication on the bilateral trade relations as China in no case will be a moot spectator in this situation. In the meanwhile, an official Chinese newspaper has alleged that both the countries are yet to find out an effective way to resolve growing trade disputes. The newspaper maintained that despite steadiness of U.S.-China, there are many hidden worries as well that cannot be ignored. It further raised apprehension that despite softening approach of Paulson on China, Beijing remains wary of America’s intentions and fears that trade dispute may increase. China is also skeptical of the newly formed democratic controlled Congress that can pressurize Bush administration to take a coercive approach to challenge China consequently bringing new uncertainties in U.S.-China relations.