China is teaching Australia a powerful lesson: Don’t cross us. The U.S. government should take note, since it owes the Asian giant hundreds of billions of dollars.

Australian Prime Minister Kevin Rudd just returned from China with his tail between his legs. With him having no roadmap on how to free an arrested Australian national, or fix the messy breakdown in relations with his nation’s most important trade partner, Australia has been humbled. West Australian Premier Colin Barnett is about to head off to China on a previously scheduled trip to see if he can make amends.

On July 5, China arrested Stern Hu, the head of Australian mining company Rio Tinto’s iron ore operations in China, on charges of bribery and “stealing state secrets.” Hu faces a possible life sentence. At least three other Rio Tinto employees have been detained as well.

Hu’s arrest comes one month after Rio Tinto’s highly politicized rebuff of Chinese state-owned Chinalco’s proposed $19.5 billion takeover. This has led some to conclude that Hu’s arrest is part of a payback for perceived Australian meddling to scuttle the deal. Stratfor said it found “the timing of this detention far too suspect to be purely coincidental” (July 8). Media in Australia had painted the Chinese takeover proposal as a selling off, or squandering, of Australian national resources.

Hu had recently engaged in iron ore price negotiations with Chinese state-owned mining company Chinalco. As such, he may have been in a position to be privy to sensitive information about the Chinese company. Since Chinalco is state-owned, any confidential information about it could conceivably be defined as a “state secret” by the Chinese.

Reportedly, Hu was using business tactics that, although may have been technically improper, are commonplace within the business community. The fact that the Chinese intelligence agencies came down with such a heavy hand, without even attempting to resolve the issue behind closed doors, sends a clear signal: China is no longer a smaller power that can be trifled with.

“Hu’s incarceration is a rude awakening for Rudd’s government to the reality that China calls the shots in most bilateral relationships these days,” says the Asia Times. The Chinese state is very willing to exert its influence to aid its large state-owned corporations in their dealings—especially when it comes to securing resources for its economy.

China’s crackdown has also spread to several Chinese companies that were doing business with and providing information to Rio Tinto. According to Stratfor, Beijing wants to strip away the loyalty of its domestic companies to their overseas business partners and shift that loyalty back to Beijing (July 14).

China’s increasing assertiveness should be a warning for America. It will be two years this August since two Chinese government officials highlighted how China could use its massive U.S. dollar holdings (which include hundreds of billions in government treasuries) as a political weapon against the United States. One Chinese cabinet-rank minister went as far as saying that America’s debt should be used as a “bargaining chip” to influence trade talks. Another Chinese official warned that China could set off a dollar crash if it so desired. Chinese state media referred to the country’s stockpile of U.S. dollars as its economic “nuclear option,” capable of destroying the dollar at will.

America and China are in direct competition for many resources, especially oil. The two are increasingly bumping heads in the Pacific. Economic investments, like U.S. treasuries, can also be geopolitical weapons.

In 2005, the U.S. government squashed the Chinese state-owned China National Offshore Oil Company’s takeover attempt of U.S.-based oil company unocal. Would America have the guts to do so again today, at a time when it needs Chinese money more than ever?

China’s rise to superpower status has major implications for America and Europe. For more information on the resource war that is coming, read “Stoking the Engines of Empires” and “The Battleground.”