Via Ray Fisher, comes this news story about just how little weight we carry with the Chinese. Just like the Americans swept the British out of financial power in the 20th Century, the Chinese seem set to do to us in the 21st, unless we stop destroying our manufacturing base, the ultimate source of economic power in an industrialized economy. Nationalized health care would help, removing a big monkey off the back of auto manufacturers, for example, and maybe even rein in health costs for the entire U.S. economy, but fat chance that happening until we actually destroy both Ford and GM in our current ideological pursuit of shrinking the national government until it can be "drowned in a bathtub."
Once again, President Bush had a difficult time wresting concessions from Chinese President Hu Jintao. And for good reason. Bush may be the leader of the world's only superpower, but when he talks to the Chinese, it's like discussing an overdue loan with his banker. There's not much leverage.
... At each of those meetings, the list of U.S. trade demands has been the same: China must stop unfairly depressing the value of its currency to gain trade advantages; it must halt rampant copyright piracy that is costing American companies billions of dollars in lost sales, and it must open its markets wider to U.S. exports.
The urgency of those demands has grown as America's trade deficit with China has soared; the trade imbalance hit another all-time high last year of $202 billion. That deficit, which represented more than one-fourth of America's record imbalance with the world in 2005, has sparked growing unrest on Capitol Hill and prompted a spate of bills to penalize China unless it halts trade practices that critics blame for contributing to the loss of nearly 3 million manufacturing jobs since Bush took office in 2001.
... But the blunt reality is that the Bush administration has little leverage to make China do more. Since China joined the World Trade Organization in 2001, the United States can no longer threaten to impose unilateral sanctions as the Clinton administration threatened to do in the mid-1990s in a copyright piracy fight of that era.
... The deficits have gotten so huge, that China's holdings have ballooned. China is now the second largest holder of U.S. government debt, with $265.2 billion in Treasury securities, and its total foreign reserves have just surpassed Japan's to become the largest in the world.
The willingness of the Chinese to hold that debt has helped to keep U.S. interest rates low, which has been a boon to American home buyers and other borrowers. But if for some reason the Chinese suddenly reversed policy and started dumping U.S. assets in favor of parking their reserves in other countries, that could have a serious impact on the U.S. economy by sending U.S. interest rates up sharply.
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