Debt to China = Brilliant (a ramble of thoughts)

As usual, a few critical facts:

$900 Billion - estimate of U.S. Treasury Securities held by China (roughly 7% of U.S. National Debt)

$338 Billion - Goods and Services imported from China to the U.S. in 2008

$71.5 Billion - Goods and Services imported from the U.S. to China in 2008

-$266.3 Billion - U.S. trade deficit with China

$4.9 Trillion - China's Gross Domestic Product (GDP)

$14.2 Trillion - United States GDP


Looking at these numbers, a few things stand out. The idea that China holds all the U.S. debt is not really that accurate. However, it is nearly a trillion dollars, and that is quite significant to anyone but a politician.

With the dollar's decline and hesitation of the U.S. economy, why would China continue to purchase U.S. Treasury Securities in such large quantities? Clearly, it is because of the $266 billion dollar per year trade surplus that China has with the U.S.

For most of the past decade, this trade imbalance has grown at a tremendous rate. The U.S. had a $68 billion trade deficit with China in 1999 and a $266 billion deficit in 2008.

In spite of a few spats of increased tariffs on Chinese or U.S. exports over the past decade, (think about things like tires and chickens) China’s inclusion in the World Trade Organization (WTO) has created a platform for general fair play in terms of trade agreements.

The main complaint against China's trade policy is that they artificially suppress the value of their currency (yuan) in order to create favorable trade conditions for their exports. That policy is really much more hurtful to China's competitors in Asia than to the U.S., because China is primarily a supplier of raw goods which will be sold as finished products by U.S. companies. (iron, steel, timber, plastics)

Thus, in its simplest form, it is not that hard to see the business relationship here. The U.S. allows trade policies which result in a huge trade imbalance with China. In return, China buys U.S. Treasury Securities in large quantities and creates a vote of confidence on the world market for U.S. debt.

Here is where we get hypothetical:

The idea that any of these policies can be confined to the economic world is ridiculous. The United States is the clear front-runner in the world's largest economy race, and China is quickly closing on Japan as the second largest.

Militarily, China's economy will provide a platform for more political influence throughout Asia and around the world. Their military of active, reserve, and para-military totals just over 7 million, just over twice the size of the United States.

Thus, China represents the largest potential military threat to displace the U.S. as the world's only 'superpower.'

Based on the history of global relations, China's military ambition will inevitably clash with the pseudo world empire of the U.S. It could be over such issues as Taiwan, Iran, or simply a dispute over natural resources.

To what scale will this battle be?

In addition to the fear of catastrophe of the world's largest two military powers clashing, (i.e. cold war) perhaps the debt of 1-2 trillion dollars is enough to keep cooler heads to prevail. I would think that declaring war would void the debt. If not the declaration, then the treaty agreement surely would.

In either case, it seems to our advantage to owe our enemy money than the other way around.

My point is that there are many intricacies of this type of foreign policy, and I hope somebody with some sense is steering the ship.