

Chinese see U.S. debt as weapon - sree_nair
http://www.washingtontimes.com/news/2010/feb/10/chinese-see-us-debt-as-weapon/

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yannis
_At the State Department, spokesman P.J. Crowley dismissed the economic threat
as potentially self-defeating. "That would be biting the nose to spite the
face," Mr. Crowley said. "The economies of the United States and China are
intertwined."_

The effect will be to lower the dollar value which would be _good news_. (That
is how Argentina came out of its Debt Crisis). It will also drive
manufacturing back to the United States, where it belonged in the first place.

I always advocated that America should have imported the cheaper labor - like
it did for many years - rather than exported the jobs.

Bottom line wish for it, if you live in the States.

~~~
ytinas
Uhm, what? For a developed country, the US has very cheap labor already. And
there are minimum wages laws to deal with as well. How exactly would the US
compete with labor as cheap as it is in China?

I can't imagine you actually mean slavery here (and I'm not convinced that
would be cheaper in any case, morals aside), but I don't know what you could
mean.

~~~
yannis
On most manufactured goods the labor component is not as high as people think.
Assume an industry where the labor portion is 30%. By a combination of a lower
dollar value as well as better efficiencies and better automation it is not
unlikely to end up with a product which is perhaps within a 15% difference of
a comparative Asian one. A 15% difference will easily be marketable for a
better quality product. (If you factored transportation costs it even looks
better).

I don't mean slavery, I believe in a living wage, but I am sure if one does
the sums there are a lot of industries that could be rejuvenated if policy
could be redirected properly.

One of the problems of the US is its large internal market which resulted in
the average US firm not to be geared for exports. This also needs to be
addressed. Let me give you an example, I worked in Dubai three years back
(large construction industry) on an average quote for machinery that typically
goes into large buildings say Fire Pumps the range of prices would be:

US 100K (non-negotiable) US 90-105K (European very negotiable) Asian 85K
(negotiable)

Order placed normally with European firm for US 88K

Any factory with not a full order book could marginally cost the products and
have a full order book.

~~~
ytinas
Ok, fair enough. I suppose in the case of some of our manufacturing industries
the labor was sent oversees not because it had to be fundamentally cheaper,
but because it was easier than dealing with the unions.

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jacquesm
Don't tell me that they only thought that the Chinese might do something like
that now, it's not as if that wasn't a predictable move.

 _Of course_ the Chinese will use US debt as a weapon, just like the US would
use it if the situation were reversed.

Don't forget that Russia crashed because of being unable to keep up with the
spending patterns of the US, not because of some moral overweight or military
pressure. Their economic structure wasn't capable of matching the US and the
Afghanistan war (the previous one, the one 9/11 was an outgrowth of) sealed
the deal.

The US is in between a rock and a hard place economically when confronted with
China, a massive sell-off could destabilize the dollar to the point that
traders would favour other currencies (most likely the Euro), and that would
accelerate the fall. If you live in a glass house you should not throw with
stones.

~~~
yummyfajitas
If China declares unrestricted war, and attempts to use debta as a weapon, we
have a very simple response: "Dear world, all T-Bills we sold to China are
hereby repudiated in response to their hostile acts."

Or, to paraphrase: When you owe China $1000, you've got a problem. When you
owe China $800 billion, China has a problem.

~~~
ytinas
At which point your currency/bonds are worthless to everyone who doesn't have
to pay taxes with them since you look for reasons to break your promises when
things don't go your way.

~~~
yummyfajitas
A single repudiation in response to hostile acts, which occurred once in 80
years will certainly make everyone dump US debt?

I doubt it. Maybe we will be downgraded from AAA to AA, but I doubt we would
see more than that. In contrast, China would lose $600-800 billion and anyone
else who wants to use debt as a weapon would think twice.

~~~
sailormoon
I think you're underestimating the effect of the US pulling something like
that. One of the main pillars of the US's strength is the absolute reliability
and inviolability of its government debt. Attempting to unilaterally annul
that debt, and for such capricious reasons, and I imagine the consequences
would be both immediate and profound.

~~~
yummyfajitas
China engaging in open hostilities against us is "capricious"?

~~~
sailormoon
Yes, because it has nothing to do with the debt. And of course China would
accuse the US of starting the war just so it could do that.

Anyway, it's never going to happen. America's not going to start WWIII over
Taiwan, talk about lose-lose.

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Estragon
I pointed this out last month. Got downvoted, though.

    
    
      How long do you think Taiwan is going to last as an
      autonomous entity, now that it can no longer rely on the
      US for military support, because the US is in hock to the 
      PRC?
    

<http://news.ycombinator.com/item?id=1050622>

~~~
hga
True, true ... but this threat only works if the PRC _keeps buying our debt_.
If they stop, _they_ have the problem of getting the outstanding debt redeemed
or writing it off, and they are of no use to us going forward (at least in
this narrow area).

------
hga
A sort of side note: I suspect what's got the PLA _really_ upset is the
proposed sale of Patriot PAC-3s to the ROC (this is the dedicated ballistic
missile killer version, with four smaller missiles in each launcher cell).

You don't have to have a totally effective ABM system to make a first strike
difficult to impossible, since your opponent _can't choose which missiles get
through_. I.e. to be absolutely sure you take out a particular target, you
have to massively saturate it ... and you can't afford to do that with all the
first priority targets.

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tcskeptic
"A group of senior Chinese military officers" sees US debt as a weapon. Which
of course they would, however, whether the civilian leadership shares their
view is far less certain. I suspect that China's civilian leadership are far
more worried about maintaining sufficient economic growth to avoid civil
unrest and uprising, obliterating the US economy is about the last thing they
will want to do.

