The Democrats holding onto the House Senate raises the chances of hearing more trash talk aimed at China next year -- for currency manipulation, for impeding the entry of U.S. companies into China (this is more of a Republican complaint but Democrats chime in, too), for poor labor and environmental standards and for apparently inexhaustible supplies of cheap labor. Those sore spots won't be getting much better anytime soon, except for one. China's not as cheap as it used to be -- for labor, or for suppliers exporting to the United States and elsewhere. China isn't raising the value of the renminbi currency as much as Washington would like. That's one way Chinese prices could rise against the dollar.

But in each meeting we attend here in Beijing we hear about rising price inflation within China, some of it at alarming rates. That lowers the purchasing power of the Chinese, and it also makes Chinese goods more expensive for foreigners. The Chinese government is reluctant to admit it has an inflation problem, but even it concedes that prices are going up at an increasing rate. The government says maybe 3 percent for all of 2010, with the CPI hitting a 4 percent annual rate these days.

Nobody believes this. The government spun a huge stimulus package last year. The money supply has gone berserk. State-owned banks are lending like crazy. Chinese who live in Hong Kong, used to dirt-cheap bargains available on the mainland, say it costs them much more travel and consume there. The 20 million Chinese migrant workers who got laid off and went back to their villages in 2009 have returned to work. Minimum wages just went up in the provinces. And workers are demanding and getting big raises from employers. Migrant workers have been getting pay increases of about 10 percent a year since 2003,said Cai Fang, a labor economist at Renmin University. This year they're going up by 30 percent, he said. He claimed productivity is rising faster than wages, which would keep unit prices down, but that's hard to believe.

Really low-wage jobs are shifting from China to places such as Cambodia and Vietnam. And food inflation, always a potential cause of unrest in developing nations, is prompting griping at the markets and unease in the ministries. Patrick Chovanec, a professor at Tsinghua University in Beijing with ties to private equity investors, says food hit an annual inflation rate of 8 percent in September. Inflation is "a tiger in a cage," says Yu Yongding, an economist with the Chinese Academy of Social Sciences and a former member of the monetary policy committee of China's central bank. The cage door is open, he says. Observers are waiting to see if the tiger escapes. "Inflation is the No. 1 problem," he says. "Housewives feel there is very high inflation."

We met with an executive from a state-owned investment fund who thinks Chinese consumer inflation has hit a pace of 15 percent annually, which if sustained could substantially erode the country's cost competitiveness and trade surplus with the United States. The question is: What will the big-picture effect be in the U.S.? Short-term, higher Chinese prices could fuel U.S. inflation. But even if inflation gets a grip in China, Cambodia and Vietnam are willing and increasingly ready to be the new low-cost suppliers.