While the idea of a trade war seems like a musty 19th- century relic, reeking of exotic spices and wrapped in fabulous colored cloth, the numbers underlying the current dispute are of a magnitude only possible in the go-go, globalizing 21st century.

The U.S. has a US$233 billion deficit with China, which in turn has lent about US$400 billion to the U.S. government by investing a chunk of its US$1 trillion of currency reserves in Treasury securities. That gives China a hefty stick with which to beat back U.S. protectionism.

The dollar is swooning at the prospect of China offloading some of its stockpile of Treasuries as swift retaliation against the accusation of being a non-market economy and unfairly subsidizing its exporters. The currency nudged 1.34 per euro, nearing a two-year low, when the duties were announced March 30 by the Commerce Department.

When strategists and economists scanned their crystal balls in recent years for flashpoints that China’s newfound appetite for overseas adventures might ignite, the most likely seemed to be the Asian nation’s need for energy sources or its political claims to Taiwan.

Instead, it turns out that glossy paper of the kind used to print magazines is the kindling for what may turn out to be a devastating financial battle. Wrangling over the US$224 million of coated paper China exported to the U.S. in 2006, though, is just an initial skirmish in what may be a protracted battle.

Every lobbyist in Washington, from those representing steelmakers to the ones pretending that the U.S. would still have a healthy auto industry if it weren’t for the undervalued yuan, will be lining up outside the office of Commerce Secretary Carlos Gutierrez to demand special treatment for their clients.

If you read too much research about the pros and cons of allowing trade and current-account gaps to swell unchecked, your head will begin to hurt. The blogs of those who spend too much time hanging around the Internet water coolers are awash with arguments about why the various U.S. shortfalls threaten to unleash financial Armageddon on the world’s largest economy and its currency. There are just as many eloquent claims explaining why deficits are irrelevant.

Run a chart tracking the change in the U.S. currency’s value in recent years, however, and it quickly becomes clear that the dollar is in lengthy, sustained decline — whether as a consequence of those so-called global imbalances, or as traders and investors participate in a market-led, invisible-hand solution to the problem via the currency markets.

The dollar has lost about 9 percent of its value in the past year against the European currency, and almost 35 percent in the past five years. On a trade-weighted basis, the dollar’s index value is down to about 81, from as high as 112 five years ago.

Figures last week showed the world’s central banks have the lowest level of U.S. currency in their foreign-exchange reserves since at least 1999. Dollar holdings dropped to 64.7 percent in the fourth quarter, according to the International Monetary Fund, down from 65.8 percent in the previous quarter and from as high as 72.6 percent in mid-2001. The euro is at its most popular since its 1999 introduction, with a share of 25.8 percent.

Various countries have threatened to try to change the denomination of the world’s energy resources, which would further weaken the U.S. currency. Iran, for example, plans to end all sales of oil in dollars, Reuters cited Iranian Central Bank Governor Ebrahim Sheibany as saying on March 30.

The U.S. can hardly claim to be a paragon of free trade. In his book “Making Globalization Work,” for example, Nobel Prize-winning economist Joseph Stiglitz says there are 25,000 U.S. cotton farmers enjoying US$4 billion of annual subsidies. Without those government payments, “it would not pay for the United States to produce cotton; with them, the United States is the world’s largest cotton exporter,” he writes.

And China hasn’t exactly ignored U.S. entreaties to change its ways. The yuan has strengthened almost 7 percent since the nation scrapped a fixed-rate regime in July 2005, and now trades at about 7.73 per dollar as the Chinese central bank oversees a slow, steady increase in the currency’s value.

The decision to impose tariffs on coated paper was described as “unacceptable” by China. “We’ll closely monitor and reserve the right to take any necessary action,” said Commerce Ministry spokesman Wang Xinpei in a statement published on its Web site.

The kicker in the tale is that cheap Chinese goods snapped up by shopaholic Americans in Wal-Mart Stores Inc.’s barns have kept consumer spending and the U.S. economy afloat while suppressing inflation. Push those prices higher, and you make the Federal Reserve’s job that much harder.

“We see U.S. protectionism as a key long-term risk,” T.J. Bond, Hong Kong-based chief Asia economist for Merrill Lynch & Co., said in a research note today. “The economics aren’t going to change. If it interferes with the global flow of goods and capital, protectionism could raise global inflation as well as U.S. bond yields.”

“Do Not Meddle in the Affairs of Dragons, For You Are Crunchy and Taste Good With Ketchup,” is a slogan available on T-shirts and bumper stickers. Maybe some champion of free trade could buy a box of each and send them to the gaggle of short- sighted, crowd-pleasing U.S. politicians as a warning that if you pull the tail of the Chinese dragon, you might be devoured.