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This is from an interview with Elizabeth C. Economy, C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations
http://www.cfr.org/publication/19925/rule_of_law_relationship.html
Today, China is Washington’s biggest creditor and holds more than $800 billion worth of U.S. treasury securities. Does this in any way compromise U.S. policy toward China?
There’s been a lot of speculation on this issue, and many people have suggested that in some way the United States is not going to press China as hard on human rights or some other issue because China is our creditor. I see things rather differently. The fact China is holding all of this debt actually gives us leverage that we’ve never had before. Traditionally, when the United States and China would negotiate and hold these bilateral discussions, the United States had a very long laundry list of things it needed from China. China had virtually nothing that it wanted from the United States, save for perhaps something to do with Taiwan, such as Washington not selling arms to Taiwan. Now for the first time, the Chinese have something they want from the United States, namely stability of the dollar. For the first time, you’re beginning to get some parity in the desire of the Chinese and the United States to hold these dialogues. Previously, it was much more the United States dragging China along to these negotiations.
You can think of it as a debt, or you can think of it as an investment. Put it this way: China NEEDS the U.S. to succeed. They need our economy to be strong, because we are their biggest trade partners. They don’t want to own us, because they would lose money. They have poured billions into the U.S., and they are going to want that money back. The only way for them to get their money is to protect U.S. economic interests.
By letting China invest so much in the U.S., we have them by the short and curlies.
Yes, yes they do.
Suddenly, we are odd bed fellows with China. We desperately need each other. China indeed is our creditor, for whatever benefit it offers. We are China’s largest trading partner, yet we are also capable of doing everything industrial that China now does, since it got its industrial complex from the backs of US workers, only cheaper.
I suppose china’s industrial complex would fold like a cheap suit without the US market at its beckoning! What options for repayment China would have, if the business relationship with the US went south, is hard to know. Maybe we need to sell off Hawaii or Guam. Or maybe just turn our loyal back on Taiwan, would that be payback for the Chinese?
I thought about putting a package together that included all of GM, since the Chinese are anxious to get into the auto business. More than likely, they would continue operation in Detroit and around the country, but that was before Obama saw himself as an auto executive. That would have reduced some of that debt, and maybe even produced jobs, but first they would need to cut the UAW from the deal if anyone expected to make any money.
Anyway you look at it, it’s hard to say who has the upper hand. China is like the landlord who owns the property, but can’t evict a deadbeat tenant !
Interesting view on the debt. Your idea works if the US doesn’t need anymore money from China.
What China can do is refuse to loan the US anymore money, good luck passing another stimulus package or health care reform then.