Tuesday, February 12, 2013

Is America Waging Economic War on China?

While perusing my list of blogs I happpened onto our Swedish defender of markets, good sense western civalization, otherwise known as Savecapitalism, he posits a question about China and the fact they now have more trade than the US.  While I was responding, I started wondering something, is all that is going on right now with our currency, acquisition of insane amounts of debt and purchasing billions upon billions of cheaply made Chinese goods, some form of economic warefare?

I ask this because the US and China are intertwined in a mutually self destructive relationship. The US has exported jobs, money and debt to another nation to consume more than it produces. This is bad for us because our dollars are going overseas, or rather, more dollars are going overseas than euroes, yen, yuan, or pounds or coming into America. Frankly, a deficit with China wouldn't matter if on a whole we netted out. If our total exports and imports summed to zero then the US would  be treading water. Unfortunately for us, it doesn't sum out. This means our funds are going overseas, and with them, jobs.

China currently sits on trillions of dollars in reserves, ostensibly it looks like a good thing, but then you realize that even though China has decreased the amount of US securities they are buying, 53% of their reserves are still in US denominated securities. This is very bad news for China as this means that over half of their trillions of dollars in reserves are dependent on the promise of the US government to owner their obligations. If the US decides to not owner it's debt to China, or even if they pay back in dollars inflated too worthlessness, then much of China's reserves, in terms of absolute value, disappear. There is some historial precendene to this, as Russia selectively defaulted on some of it's creditors, or delayed payment to others, during the 1998 Financial Crisis.

The other issue we need to consider in regards to China is that China needs to grow, and their consumption levels cannot support their production levels. Only 50% of their GDP is consumed by their own people, which is down from 56% in 2002. Exports accounts for 30% of their GDP. In 2011 China exported 400 billion dollars to the United States, and while that seems like a small percentage of GDP, that is almost as much as the entire GDP of South Africa. The simple fact are that there are few markets large enough to purchase 400 billion dollars of goods, and China's consumers would have to grow by 11% to meet that demand. Not an insurmountable task, China is attempting to raise domestic consumption now, but here is the problem they face. Production precedes consumption, or in other words, production determines the wages the workers earn which then determines consumption. The fact that after decades of growth and that they still have consumption levels so low indicates that they are not there yet.

Which returns us back to the United States. The reason why I wonder if the US is waging economic war on China is because we have received trillions of dollars in loans from the Chinese to subsidize government spending. We have used those borrowed yuan to purchase real tangible goods, for example, tanks, aircraft, carriers, and submarines. If we suddenly say to China, no we aren't going to pay, then we essentially got those items for free. A gross simplification I know, but the fact is that China can't make the US pay.

The United States has the largest navy in the world, it controls the seas, the very seas that China depends on for international trade. There is no way the Chinese could force us to pay if we said no. This doesn't mean the US wouldn't suffer for it's actions, it would, but given the east Asians nations unease with China as of late, who would they side with when the chips fell? Also, is it so totally out of the question to think that America may be intentionally running the international system in the ground to prevent a potential challenger?

You then have to consider that America's material wealth, timber, grain, gold, and oil are far greater than China's, in relative terms. We have more than enough resources for domestic use if we choose to do so, China doesn't. And in the end, it is who has the most stuff that is the wealthiest right?It seems that it is a question of who is the biggest sucker, America for exporting it's jobs, or China for trading it's hard earned money for promises of repayment, or who is the savviest, China for using the American consumer to allow for excess production, or America for taking China's loaned money and buying real tangible goods like nukes.  You decide for yourself, but if you look at our own financial crisis, who was hurt the most, the person/company who made the shitty loans, or the person who was foolish enough to believe their AAA promises?


  1. Its only a matter of time before its war for real

    1. I'm still on the fence on the matter. There is a lot more unrest in China than we think, and while that could be a facilitator of armed conflict, it could also cause the PRC to turn inward.


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Seattle resident whose real name is Kevin Daniels. This blog covers the following topics, libertarian philosophy, realpolitik, western culture, history and the pursuit of truth from the perspective of a libertarian traditionalist.