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March 13, 2009 – Anyone who has done business in the Orient will tell you that business there is conducted differently that in the United States. Conversations are often very indirect and full of subtleties that force you to listen carefully and read between the lines. When someone expresses “concern” about something such as investments, that may translate more directly to American English as “panic”. The one thing you learn very quickly when conducting business in the Orient is that phrases tend to be very carefully worded when the person making a statement intends to convey displeasure. Such were the comments of Chinese Premier Wen Jiabao today. The question is, was he threatening the United States or did he speak out of turn?
As head of the Communist Party in China, Wen Jaibao has a great deal of sway over what China does with its money. Where the country invests. Today, he was speaking with a reporter and he was asked about China’s investment in US Treasury notes. In his response, he said that he was “definitely a little worried” about these investments.
China holds more than $1 Trillion in US Treasury notes. The country is our largest creditor. They are also a large trading partner and responsible for a great deal of the trade deficit experienced by the United States.
There are several reasons to be concerned about Wen’s comment. Within the past week, Chinese trawlers intercepted and interfered with a US Navy intelligence ship, the Impeccable, that was operating in international waters in the South China. The US ship was unarmed and was forced to turn a firefighting water cannon on the Chinese vessels during the confrontation. The incident was probably a test to see how President Obama would react in confronted. In response, the Navy has now dispatched a guided missile destroyer as an escort for the Impeccable. At the same time, China has issued a formal demand that the US stop gathering intelligence off the Chinese coast.
Another reason for concern about Wen’s comment is that the US is relying heavily on Chinese money for the spending bills that Congress has passed in the name of economic stimulus. There has been a fear for some time that China, in an effort to hurt the US financially, could not only stop buying new US Treasury notes, but dump the notes it currently holds on the open market. Such a move could have grave consequences for the US economy, however it would be foolish of China in the long run.
China is heavily reliant on US consumers for its sustained growth. Any move to hurt the US economically could be met with an embargo of Chinese goods. On a long term basis, this would hurt China much more so than the United States. Additionally, an embargo of Chinese products could lead to a resurgence in manufacturing jobs in the US; helping our economy over the long term.
This week’s saber rattling by both sides is most likely posturing. Both countries are dependent upon each other. China needs US consumers and the US market to remain open if the country wants to continue its rapid economic growth. In the short term, the US wants access to Chinese capital.
But over the long term, the US and China are not likely to become friends. In fact, China is already an economic enemy of the US. The country has manipulated its currency to increase the trade deficit and to make it more attractive for companies to outsource jobs and manufacturing to China. And the Chinese are not shy about violating US anti-dumping laws to dump excess product in the United States at below market cost. Although such practices do provide consumers with cheap goods, they also result in US job losses and depress our own economic growth.
China is also rapidly building its military to a point that a new cold war is becoming more likely. They have been acquiring sophisticated weapons systems, and have even used lasers to target American satellites. A friendly nation would not engage in such practices.
In the end, continuing a status-quo relationship with China is not in the best interests of the United States. It is time to remove China from the Most Favored Nations List of trading partners, and for Americans to wean themselves off of Chinese goods. This could put millions of Americans back to work and help our economy and it would deny China access to American capital. Capital it uses to suppress human rights. To subdue Tibet. And that it needs to continue its military expansion. By continuing to purchase from China, we are only funding a nation that we may eventually have to fight.
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