It is no secret that China owns a large chunk of the U.S deficit. The U.S. has gone into debt to combat a complete collapse of its economy after the collapse of the housing market in early 2008. Once the housing market went downhill, it was quickly followed by the automobile market and the job market. That put the U.S into survival mode, which has allowed the Chinese to purchase the amount of debt they have. By holding the purse strings, China could be the savior the current administration is hoping for or China could leave the U.S high and dry with no hope of recovery.
Since the U.S is so beholden to China, China’s agenda may become part of U.S. domestic policy. In early 2009, China’s Premier, Wen Jinbao expressed concerns over the U.S.’s ability to repay its already staggering debt obligations and stated that the U.S. should be nice to the countries that help to support it (Simpkins, 2009).
The thinly veiled threat that statement contains could lead the U.S. to bend its current policies to allow China to control more than the national debt, which could include economic policy from concerns over getting repaid and U.S. International policy to favor China, its policies, and its allies. If China’s threat holds true, it could allow China to control what the U.S. does internally and externally, leaving the U.S. on shaky international soil. Recently, the Chinese are encouraging the U.S. to stop the sale of military equipment to Taiwan, citing that this action would undermine relations between the U.S. and China (China warns U.S., 2010).
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Could that mean that if the U.S. does not behave as the Chinese want that they will quit funding the U.S. recovery?
Currently, the Chinese economy is in a boom period, which could leave the U.S. high and dry (Yanping, 2010).
With Chinese manufacturing creating the economic boom, it has no need to artificially create one by loaning money to outside sources in hopes of recovering its investment plus interest. This means that China may no longer buy the Treasury Bonds it has been lapping up, which will leave future spending on the economic recovery plan unfunded. Without funding, the U.S. economy as it is known will be bust, leaving the U.S. to be at the bottom of the economic food chain.
The truth is that China depends on the U.S. as much as the U.S. depends on China. In 2005 the U.S. was the second largest market where the Chinese exported goods (Morrison, 2006).
If the U.S. economy collapsed, it would mean a significant reduction in income to the Chinese. While it may not be enough to topple the Chinese economy, China must recognize that it is in their best interest, as well as the U.S.’s best interest, to keep helping the U.S. recover. Once the U.S. recovers its economic stability, the Chinese will have two avenues of income from the U.S.; the sale of exports and the repayment of trillions in Treasury Bonds.
China does hold the fate of the U.S. in its hands. Quite easily, China could cause the complete collapse of the U.S. economy. China could stop buying Treasury Bonds or sell them off to other countries willing to invest in the U.S., but the likelihood of that happening is minimal since a large portion of the Chinese economy depends on the U.S. as well. Most likely, China will continue to support the U.S.’s efforts for recovery since the long term well being of the Chinese economy would benefit.
China warns U.S to cancel Taiwan arms. (2010, January 5).
UPI. Retrieved January 5, 2010, from http://www.upi.com
Morrison, W. M. (2006, January 12) China’s economic conditions. CRS Issue Brief for Congress. Retrieved January 5, 2010, from http://www.fas.org
Simkins, J. (2009, March 25) Is China a threat to the U.S. economy? Yes and no… NuWire Investor. Retrieved January 5, 2010, from http://www.nuwireinvestor.com
Yanping, L. (2010, January 4).
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Chinese manufacturing grows by most since April 2004. BusinessWeek. Retrieved January 5, 2010, from http://www.businessweek.com