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Already strained by everything from Internet freedom to Iran's nuclear program, relations between the United States and China have now plunged to their lowest point in nearly a decade amid a new dispute over the planned sale of advanced U.S. arms to Taiwan.

Two months after U.S. President Barack Obama travelled to China, hoping to increase co-operation between the world's two most powerful countries, dealing with Beijing is now one of the more complicated files on his overcrowded desk. Even before the Pentagon announced last week that it would sell $6.4-billion (U.S.) worth of weapons to Taiwan, Washington and Beijing were facing off over issues as disparate as China's artificially low currency, human rights, cyber-attacks on American companies and dramatically differing views on who is responsible for fighting climate change.

The proposed Taiwan deal - which would include anti-missile systems, attack helicopters, minesweeping ships and communications gear - has actually been in the works since 2001. After years of trying to block it, Beijing now says it will retaliate by suspending military ties with Washington and imposing sanctions on the American companies involved in the transaction.

While the freeze in military-to-military links was expected, China's threat to slap sanctions on companies such as Boeing and Lockheed Martin is unprecedented. It's a sign of China's new assertiveness on the international stage, and it shows how quickly ties with the Obama administration have deteriorated.

Selling weapons to Taiwan "violently interferes in China's internal affairs, seriously undermines China's national security and her national unification cause, and thus inevitably casts a shadow on China-U.S. relations," read an editorial distributed over China's official Xinhua newswire.

The U.S. ambassador in Beijing, Jon Huntsman, was summoned to the Chinese Foreign Ministry on Saturday and warned of "serious repercussions" over the weapons deal. Beyond unspecified sanctions against Boeing and other firms, Beijing is expected to express its displeasure by suspending co-operation on issues where Washington is seeking its help, such as Afghanistan, Iran and potentially even North Korea.

"This is a pretty low point. This is probably the lowest yet since the incident with the planes under the Bush administration [the collision in April, 2001, between a U.S. spy plane and a Chinese fighter jet in Chinese air space]," said Wenran Jiang, senior fellow at the Asia Pacific Foundation of Canada.

China was one of the few countries where the end of George W. Bush's tenure in the White House was marked with some sadness. The spy plane incident made for a rocky beginning, but Mr. Bush oversaw a warming of ties and the rapid expansion of trade as the two sides found common ground after the al-Qaeda attacks of Sept. 11, 2001.

Mr. Obama initially impressed by making engagement with China a foreign policy priority of his first year in office, but the relationship has since been staggered by a series of disputes. Most notable was the revelation that 34 American companies had been victims of a cyber-attack that Google, one of the targeted firms, alleged originated in China. U.S. Secretary of State Hillary Clinton waded into the dispute to back Google, sparking furious protest and cries of imperialism from Beijing.

The relationship between the two powers was changed fundamentally by the global recession that Mr. Obama inherited upon taking office. The downturn has seen U.S. economic leadership take a severe blow while China has emerged quickly from the crisis, posting nearly 9 per cent growth last year. China also holds $800-billion in U.S. treasury notes, a fifth of the U.S. government's total debt to foreign investors.

China's unhappiness over the arms sale is magnified by its timing, at the end of a year that saw stunning rapprochement between Beijing and Taiwan, which broke away from the mainland in 1949 at the end of a civil war. The past 16 months have seen the establishment of direct air, post and shipping links for the first time since the war ended.

A U.S. State Department spokeswoman defended the weapons sale yesterday, saying it would help ensure "security and stability."

It's all a dramatic step back from Mr. Obama's November trip to Beijing, the first time an American president had travelled to China during his first year in office. After a meeting with Chinese President Hu Jintao, Mr. Obama called for greater co-operation between the two powers. "The relationship between the United States and China has never been more important to our collective future," he said.

"The Obama administration completely misread China," said Gordon Chang, author of a 2001 book called The Coming Collapse of China. "They had this view that if you're nice to China, it will be nice to you. But that's not the way the leadership in Beijing works.

"They see these signs of friendship as signs of weakness and press their advantage. This is going to be a very turbulent period in China's relations with the rest of the world."