Im not sure what your saying but your better with this than me, but China finances our dept so to speak so that the US can keep buying the goods China produces. China sells more goods “and cheaper being the issue” and services to the US, than the US sells to China. The intent is to maintain solid export growth thus relating back to their own economy growth. The reasoning is the stability of the market. So in essence the relationship is interactive and dependent on each other. The complaint is the exchange equality of import/export goods which is to balance the market favors China is unrealistic trade practice. The question of China not buying the US treasures of us not selling them results in the collapse of the dollar not resolving either issues.
How Did China Become One of America’s Biggest Bankers?
China is more than happy to own a fifth of the U.S. debt. Owning U.S. Treasury notes helps China’s economy grow by keeping its currency weaker than the dollar. That keeps products exported from China cheaper than U.S. products, creating jobs for its 1.4 billion people.
The United States allowed China to become one of its biggest bankers because the American people enjoyed low consumer prices. Selling debt to China allows the U.S. economy to grow by funding federal government programs. It also keeps U.S. interest rates low. However, China’s ownership of U.S. debt is shifting the economic balance of power in its favor.
Why Does China Own So Much U.S. Debt?
China makes sure its currency, the yuan, is always lower than the U.S. dollar. Why? Part of its economic strategy is to keep its export prices competitive. It does this by holding the yuan at a fixed rate compared to a basket of currencies, the majority of which is the dollar. When the dollar falls in value, the Chinese government uses extra currency to buy Treasuries, which increases demand for the dollar, increasing its value. Also, China promises to redeem dollars for yuan at the fixed rate. It must keep a good supply of Treasury notes in reserve.
The issue in my reading results here…
lower standard of living, which allows companies in China to pay lower wages to workers.
An exchange rate that is partially set to be always priced lower than the dollar.
However, this means that many American companies can’t compete with China’s low costs. As a result, many jobs are lost. From time to time, legislators try to impose tariffs or other forms of trade protectionism against China to bring jobs back.
However, if this were to actually happen, U.S. consumers would have to pay higher prices for their “Made in America” goods. That’s why it’s unlikely that the trade deficit will change. Most people would rather pay as little as possible for computers, electronics and clothing – even if it means other Americans lose their jobs.
I agree the US will pay more for US products but I don’t see that as a major issue in growing the financial economy and balancing the trade. This in effect happens now with the same product built here as opposed to there.