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Having enjoyed a relatively tranquil first year in terms of foreign policy, the Obama Administration has recently run into more stormy conditions. relations with China continue to be tense, with new arguments breaking out on the value of the Chinese Yuan. Our contacts tell us that it is becoming more likely that the US Treasury will name China as a “currency manipulator.” This would be a major step that previous Administrations have resisted. It would provide further evidence that the Administration’s focus on domestic job creation is leading it in the direction of trade protectionism. Recent episodes such as the likely award of a major aerospace contract to Boeing (which has drawn protest from the UK and France) and the fierce Congressional questioning of Toyota executives (which have aroused suspicion in Japan of favoritism to the domestic US manufacturers) all indicate that the US market may become less welcoming to foreign imports. Most serious, however, has been the rapid deterioration of relations with Israel over the issue of Israeli settlement projects. As we have noted for some month, the Middle East peace process has amounted to little more that going through the motions. A public breach with Israel will further complicate the Administration’s policy in the region, notably over Iran. Top US leaders, including Secretary of Defense Gates, have been seeking to gather support for tougher sanctions against Tehran. To date, however, the results have been inconclusive. In particular, Saudi Arabia has remained ambivalent to Administration requests to guarantee additional oil deliveries to China as a substitute for Iranian deliveries. With these complications intensifying, our judgment is that US policy is now fixed on “containing” Iran rather than preventing it militarily from acquiring a nuclear weapon. Finally, it should be noted that, while these foreign policy problems are important in substance, President Obama and his top team are almost exclusively focused on the domestic issues of health care and jobs.