There's this widely held view that i regularly see on here and in the mainstream media which suggest that China owns us because they buy our debt , so we should start learning how to bow to them now since they will surpass us as the largest economy in the world.
For its part , China have become increasingly arrogant by outright letting the U.S know how great they are and how we're in a long decline.
This is why they've rejected any climate deal pushed by Obama in Copenhagen and are also playing "hard to get" in other foreign policy theater.
I've read again and again on DKos how we are indebted to China and how they are doing us a favor in buying our debt + the damage they could do to us if we don't start being nice to them and quickly give in to all their demands.
In short term , they believe the U.S needs China more then China needs us....This believe is totally false , wrong and it's really getting in the head of the Chinese to now think they can wave us off on everything since U.S liberals tells them that we're soon be their slave.
The truth is , the Chinese needs the U.S much more then we need them and Krugman penned a very nice Op-Ed explaining why the U.S should stop being nice and get tough on the Chinese while daring them to dumb the Dollar.
The assumption is that the Chinese could stop buying our dollar(debt) and the U.S economy would collapse.
Problem with this theory is that the Chinese would cause major problem on their economic by taking such a step....I'll let Krugman explain:
I usually hear two reasons for not confronting China over its policies. Neither holds water.
First, there’s the claim that we can’t confront the Chinese because they would wreak havoc with the U.S. economy by dumping their hoard of dollars. This is all wrong, and not just because in so doing the Chinese would inflict large losses on themselves. The larger point is that the same forces that make Chinese mercantilism so damaging right now also mean that China has little or no financial leverage.
Again, right now the world is awash in cheap money. So if China were to start selling dollars, there’s no reason to think it would significantly raise U.S. interest rates. It would probably weaken the dollar against other currencies — but that would be good, not bad, for U.S. competitiveness and employment. So if the Chinese do dump dollars, we should send them a thank-you note.
THANK YOU KRUGMAN , I COULD NOT HAD ARTICULATED IT ANY BETTER!
By dumping the dollar , China pushes the dollar down even further while its currency rises sharply against us...This effectively takes away one of China biggest advantage on trade..Cheap goods entering the U.S...So China has to keep buying dollars just to keep their currency pegged to the dollar.BINGO!
This is why China would never do such a thing and the U.S would be expected to quickly retaliate and the best way to retaliate against China is by hitting their export-led economy..Block Chinese goods from entering the U.S. PERIOD!
The Chinese may also blocked our export to their country , but remember that..The Chinese is 10 times more dependent on export then we are..They run massive trade surplus against us because of unfair currency advantage..
Therefore , in such a battle , Chinese lose we win.
And just like Krugman articulated , some good old trade protectionism may indeed be very beneficial to the U.S
Obama's white house have implemented tariff on Chinese pipes and tires...If he's smart , he should continue to put tariff on as many Chinese goods as he can get with WTO standard.
My fear is Obama is way to nice of a person and truly believe he can get the Chinese to be more open with their market while allowing their currency to float.
Problem is , China only cares about China and doesnt care about anyone , specially us...They hate us and can't wait until they surpasses us.
My final thoughts is , China will only surpass us if we let them by not taking on their unfair trading...Let's hope Obama will do exactly that