U.S. Starts to Push Back Against China in Growing Rift (NYT) == THIS IS BIG

[WallStreetNobody]

My business largely involves China and other parts of Asia and this is something that has been brewing for some time, but especially in the last couple years.....almost like an unofficial political/economic war taking place, trade measures, google exiting china, this weapons sale to taiwan, and just tons of other things. I think it is necessary as well, I have a lot of experience with doing business in China and you need to respond to them with strength, otherwise they'll try to take the upper hand. And the fact of the matter is that despite all the "growth" in China it is still a third world country with most third world country problems and is heavily dependent on the US as a trading partner for its growth. Regardless of what some people may think, the US still has the upper hand with China.


http://www.nytimes.com/2010/02/01/world/asia/01china.html?emc=eta1

[Hannah Bell]

1. "the US still has the upper hand" - this was my feeling. i've always thought our chinese

offshoring & debt arrangement was a kind of quid pro quo thing, collusion rather than competition -- on the large scale, if not on the small scale.

[WallStreetNobody]

4. Paulson's book

I haven't read Paulson's book yet but he reveals in there that during the credit crisis top-level officials in Russia contacted the Chinese about together dumping their holdings of the GSEs (Freddie, Fannie) in order to force the US to back-stop them and go deeper into debt. The Chinese supposedly declined, but the point is this type of economic warfare happens a lot. And despite the damage inflicted on our economy by the banks, we're still the central source of supply and clearing house for most of world's investable assets. We also have greater reach than anyone. Also despite the Chinese government's large holding of US treasuries they are still not HUGE holders. They hold roughly the same amount as the Japanese and a fraction of the amount held by US institutions, individuals, and the Federal Reserve. For all the hysterics out there about how much US debt the Chinese hold, it amounts to under 5% of our total debt. It's significant but not insane. Ultimately the Chinese plan to do the same thing with every industry, copy what Americans or in some cases Europeans are doing. The problem with American companies opening up in China is keeping control of their intellectual property which is almost impossible. They don't grow industries organically the way we do in America, and that along with of course being the buyers of all their cheaply produced manufactured goods are the main reasons they need America. We need China to produce those goods, but we can also help other underdeveloped countries build out manufacturing capabilities, and help our own country rebuild its manufacturing base. In which case we don't need China for much. In an economic war between us and China I would put all my money down on the US in a heartbeat and it has nothing to do with being patriotic, it's just a good bet.

[Vinnie From Indy]

6. You forgot to mention the Chinese Fifth Column right here in the good ol' USA

The guys in Bentonville Arkansas have bet the farm on good relations between China and the US.

[SpiralHawk]

27. And the BFEE -- Marvelous Marvin and Silverado Neil -- are up to thier Skulls & Boners

in, ahem, 'dealings' with the 'godless red commies' as the republicons used to say...

[blm]

41. Yep. GHWBush and Jackson Stephens set those deals in motion in the 70s. No surprise Stephens was

bankrolling Clinton into office in 1992 to protect the fascist gains that he and Poppy had achieved by then, but, were in danger of being fully exposed by the Dec1992 release of the BCCI report.

[ieoeja]

46. And GHW's brother is a big honcho in the China-America Business Chamber of Commerce.

And GHW sent our scientists to China to upgrade their nuclear facilities (albeit, something everyone agreed to after Chernobyl) which resulted in the transfer of nuclear missile technology.

And GW ignored their theft of an advanced reconaissance aircraft.

It's almost like there is a cabal of the superwealthy in this country that are draining us dry while preparing to move on to other countries when we have nothing left....

[blm]

47. It's called GLOBAL FASCISM. WalMart was the first REAL test of getting Americans to accept fascism

as their new governing principle.

Over the last 3 decades the American people were dumbed down enough to ACCEPT and EMBRACE the fascism that marched in 'wrapped in a flag and carrying a cross' just as expected.

Supreme Court last week just made it official.

[Hannah Bell]

21. my understanding is that a great deal of foreign direct investment financed

china's boom, & that in tech there's still a great deal of direct investment & ownership. i read someone who seemed to be in a position to know say this.

also read many times that about half the goods exported here from china are actually not-chinese owned, but foreign-owned.

as to us "needing china to produce our goods" - why would that be?

seems to me the capitalists might "need" to produce offshore to bump up their profits, but i'm not sure any country "needs" another to produce their goods except in exceptional situations.


how long have you been in china?

[Lint Head]

2. I wish somehow the cheap crap made in China would go away.

I've had some very expensive items break down because the parts that used to be made here are now made in China and do not meet the specifications they used to.

[emilyg]

11. Baggies at the dollar store with no bottoms. Made

in China.

[iceman66]

45. Indeed.

Trying to find quality products (made in USA or other first world countries) is getting more and more like trying to find a needle in a haystack, given all the Chinese crap that is out there.

[TexasObserver]

3. The US should tell China to shove it.

Without the US market, China would be drowning in the cheap shit they make for export.

As for China's whines about the dollar, too bad.

China isn't going to do a damn thing except talk big.

[HeresyLives]

5. 'Hah, barbarians!' said the emperor as he nibbled grapes.

'Why should Rome worry about a few piddly barbarians?'

[FreakinDJ]

7. You mean the NYT just now figured it out

WOW......

[lib2DaBone]

8. Well.. by all means...if China is faultering.....isn't our duty as good Republicans....

Our duty as good Republicans is to support China.. make sure our industry is crippiled before it even starts.

We need to support China and do all we can, to make sure China has the latest computer technology... the latest manufacturing tecnology and access to free money for business development.


Long Live China and U.S. CONgress!!!

[Odin2005]

9. China can shove it up their rear end. Time for punitive tariffs.

[HeresyLives]

10. Yes, a trade war would be helpful.

China could then just call in their loans.

[WallStreetNobody]

15. No, they can't call in their loans

China can't just call in their loans. There is nothing in a US Treasury indenture or virtually any bond indenture that allows the lender to just "call in" their loan unless there is a default or technical default (e.g. violation of certain covenants). The chance of a default by the US government is still the slimmest of any debt in the world, despite the mess left by the Bush administration. What they CAN do is just start to dump their treasuries in the open market which would simply push the prices down and in turn lower the value of their own sovereign holdings. So they'd still be shooting themselves in the foot in order to hurt the US.

[FarCenter]

17. Their holdings of US debt are more like a nuclear weapon

It has the greatest effect if it is not actually used.

In this case, they are able to defend themselves financially and eliminate any threat of the US being able to minipulate the Chinese financial system.

[HeresyLives]

18. Yes, they can.

And I'd say the current US action is a violation of covenant...but that's just me. LOL

China can hurt the US 6 ways from Sunday.

So all the chest-thumping in the world isn't going to help.

[smiley_glad_hands]

19. Fuck China

Hey, Canadian, we are required by law to defend Taiwan. They have less than 5% of our debt. How exactly are they going to hurt us again?

They should be grateful that we continue to buy their cheap plastic crap.

Keep your propaganda up north.

[daleo]

23. Nice, you insulted three countries

China, Canada and half the U.S., since you seem to believe any American who doesn't agree with your position (and that's plenty) must be a victim of northern propaganda. Well played.

[smiley_glad_hands]

26. how much does wamart pay you to support their position?

Again, fuck China and the cheap plastic shit sold at walmart.

Edited for spelling

[daleo]

31. Now you are directing your anger at the right targets

The Chinese have just taken advantage of western corporations' (like Walmart) desire for fat profits via dirt cheap labor costs, with no concern for the future of their own countries. It's not the Chineses' fault our own elites could care less about us. Change has to come from within. Global capitalism has turned into a race to the bottom. I'm no fan of it.

[hack89]

29. You are wrong

A debt is a contract with explicit terms agreed to by both parties. As with most debts, U.S. treasury bonds (which is the U.S. debt that Chinese entities hold) cannot simply be "called" by the creditor prior to the bonds' expiration dates any more than someone's mortgage or car loan can be called before it's due. A lot of people seem not to understand that debts cannot just be arbitrarily called at any time unless the debtor defaults on payments, or in unusual cases where that is written into the contract.

Treasury bonds are sold with a given maturity (for example, a date 5 years, 10 years, or 30 years after issue). Upon maturity, the government redeems those bonds for the face amount. In the meantime, the government pays cash interest payments (the "coupon") on a regular basis. You can demand early payment on the debt all you want if it makes you feel good, but no one will pay any attention to you

[daleo]

32. The Chinese could dump their U.S. bonds on the open market

And quit buying newly issues U.S. bonds. Both would hurt U.S. credit, via the age old mechanisms of supply and demand. It might hurt the Chinese just as much, but countries and people can be irrational.

[smiley_glad_hands]

33. its only 5% of our total outstanding debt

They would be devaluing it as soon as they dumped it and the fed could come in and scoop it up at a discount

Fuck china

[galileoreloaded]

37. Yep!!! that FED is the bestest buyer of all!!!!........SELL, SELL, BUY, BUY !!!!!!

JFC (Jesus Fucking Christ) EDUCATE YOURSELF, MAN, OR FEEL THE CONSEQUENCE!!!

[hack89]

38. Nice rant - feel better? nt

[galileoreloaded]

39. Sadly no....n/t

[hack89]

40. Try some reason and logic next time - much less stressful nt

[smiley_glad_hands]

43. fuck china eom

[A HERETIC I AM]

44. No, they can't in spite of how much you might think they can. Hack89 is right.

His terminology is slightly off, but the point Hack89 makes in his post #29 is exactly correct.

The holder of US Treasury debt can NOT demand early redemption ("call in their loans") from the US Treasury.

That ability, if it existed is known as a "putable" bond, meaning the holder can "put" it back to the issuer. There is only one class of US Debt paper that is putable; savings bonds, both "Series I" and "Series E/EE". That is not what the Chinese buy. Savings bonds are zero coupon bonds and their target market is the individual US saver, not international entities and represent a small fraction of the overall quantity of issued US paper.

Many bonds have "Call" provisions which means the issuer can "call them in" at a date prior to maturity (and the holder has no say whatsoever if an entire cusip is called) but Treasury Notes, Bills and Bonds do not have call provisions and never have.

As far as the Chinese dumping their holdings of US debt paper on the open market, let them. They'll lose their asses. If they did and a large quantity of their held paper started hitting worldwide trading systems, prices would fall and every single subsequent transaction would be settled at a lower price. Not only would they no longer be receiving the regular coupon payments the US Treasury makes to them, they would be selling into a declining market. The thing is, the market for Treasuries, like almost all bond markets, is self correcting. As prices fell, yields would rise and they would rise to the point that other buyers would flock back in.

The Chinese send us their "cheap plastic crap" and we send them dollars. They turn around and buy US debt with those dollars and get more dollars in interest payments. Treasury debt is bought with dollars, pays interest in dollars and is redeemed in dollars, NOT Yuans or Euros or Yen. No country with large holdings of our debt paper wants to see, much less can afford to have the US default on their debt.

Many on DU seem to think the Chinese buy Treasuries directly from the Treasury itself. They don't. They buy them on the secondary market just like everyone else. If they choose to sell them, they do so on the open, secondary market and they have no control over who the buyer is, outside of rejecting a bid.

[galileoreloaded]

36. Your knowlege base is technically insolvent......n/t

[FarCenter]

12. China has observed the Japan and the Asian financial crises

China has observed what happened to the Japanese in the early '90s and to the "Asian tiger" economies in '97.

While the US has been distracted with the War on Terror during the Bush administration, China has pursued policies to strengthen their economy. They have also acquired foreign reserves, commodity stockpiles, and strategic resources to make their economy independent from financial manipulations in New York and London.

It is doubtful whether the weakened Anglo/American system can significantly damage the Chinese economy or reestablish economic hegemony in East Asia. For one thing, the offshore Chinese and the Japanese have no incentive to assist in an Anglo/American manipulation.

Besides, the current financial conflict is with the Eurozone, and the financial speculators are preoccupied with doing their best to pick off Greece at the moment.

[Fumesucker]

13. Who else are we going to borrow the trillions of dollars we need from?.

Goldman Sachs need oceans more money for bonuses and those wars aren't going to fight themselves.

[Hannah Bell]

22. we owe china about $800 billion. a pittance, actually. there are no "trillions" except those owed

to the social security trust fund.

[Fumesucker]

24. I said "borrow" not "have borrowed"..

A matter of tense, we "have borrowed" eight hundred billion, we need to borrow trillions in the future.

And my guess is you're not counting the trade deficit ..

Edited to add: As luck would have it, the very next thread I click on talks about a $1.5 trillion deficit for the next year.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x7616915

[Hannah Bell]

28. we don't "need" to borrow trillions from china. we don't "need" to run a trade deficit with them.

those outcomes are the result of policy choices. so the choice of running a $1.5 trillion deficit would be.

FYI, the entire federal budget for 2009 was 3.1 trillion, the deficit portion about 187 billion.

There is no "1.5 trillion deficit" coming in 2011.

You confuse debt & deficit. As did the OP.

[AdHocSolver]

14. We are in hock to China because the American corporations set it up that way.

The cartel written trade agreements the U.S. has with the rest of the world are designed to "make it there and sell it here".

The corporations tell us that the U.S. has to compete in the "global economy" and take advantage of "free trade". These are not economic terms, but corporate buzz words to confuse the public.

Our economy is being pillaged by the corporations, and they control U.S. trade very tightly for their own profit. It is not the Chinese fault that there is little that they want to buy from us. Anything the Chinese might find worthwhile to buy from us, they can make more cheaply in China since their wages are far lower, and the corporations have been exporting American technology and factories to China at a record pace.

The U.S. economic problems are the corporations' doing. What were their motives? By exporting jobs, the corporations eliminate American labor costs, gut the union movement as they eliminate jobs, avoid paying benefits to their work force, and avoid paying taxes in the U.S. Moreover, the corporations avoid having to deal with environmental regulations, health regulations, and labor regulations.

The significant point is that China is NOT our problem, and until the U.S. deals with our own corporate cartels, nothing is going to change.

[FarCenter]

16. The American corporations were encouraged to outsource to China by the US Government

[Karmadillo]

25. By the US Government owned by American corporations.

nt

[daleo]

48. It's kind of circular

The U.S. government was encouraged by American corporations to encourage U.S. corporations to outsource (that's who pushed for globalized trade, back in the 80s and 90s).

[daleo]

20. China and the U.S. are co-dependent

But co-dependency is a neurotic state, and neurotics can hurt each other even when it isn't rational.

[galileoreloaded]

35. Huge myth, right here. Educate yourself. n/t

[daleo]

49. That's not debate

You haven't advanced debate with that statement, you have just expressed an unsupported opinion.

[earthboundmisfit]

30. K&R

n/t

[galileoreloaded]

34. There is no pushback to China, absent the hyperbole pulpit. LOGIC FAIL!!!! n/t

[Romulox]

42. Nobody believes it. nt