Image caption The investigation into aluminium imports has much broader implications

The US government is set to decide whether to escalate a dispute with China over its currency policy.

The Commerce Department was asked by US manufacturers in April to look into imports of aluminium-based goods for the car and construction industries.

The department must now decide whether to launch an investigation, which could lead to retaliatory trade sanctions.

The main point at issue is whether China unfairly subsidises its exports by manipulating its currency.

Many economists and politicians in the US allege that China holds the value of the yuan down, making its exports artificially cheap.

'Currency manipulator'

A decision to open an investigation may signal a change in strategy by Barack Obama's administration.

The US president is under pressure to come up with a new plan to turn the flagging economy around before Congressional mid-term elections in November.

If Washington does go ahead, analysts say this it is likely to reignite serious trade tensions with Beijing at a time when things had seemed to have been smoothed over.

In July, US Treasury Secretary Tim Geithner released a report into China's currency policy which avoided labelling the country a "currency manipulator".

That accusation would have provided a basis for efforts within the US Congress to pass punitive trade sanctions against China.

Shortly afterwards, China responded by allowing the yuan to strengthen gradually against the US dollar.

However, the Chinese currency has gained less than 0.5% in value since then.

Moreover, recent trade data has shown the US running enormous trade deficits again - and China running surpluses - despite the US economy remaining weak.