Beijing has more words for U.S. debt negotiations. But does their opinion matter?
Reuters reports that China is continuing to press the United States "to take 'responsible' measures to boost market confidence in the dollar and U.S. government debt." Beijing's messages come as some investors worry that Washington could default on its debt.
Here's the interesting part, though: Who exactly asked Beijing for their opinion on the matter?
China cleverly, and self-servingly, has been continually undervaluing its currency to boost exports to the U.S. This stategy has worked, as evidenced by America's vast and rising trade debt with Beijing.
As Alliance for American Manufacturing (AAM) Executive Director Scott Paul explained last week, however, China desperately needs the U.S. as its key export market. This means Beijing has little choice but to sit on the sidelines while Washington hammers out a budget deal:
It’s true that China holds about $1.1 trillion in U.S. securities, which is roughly equal to 12 percent of the US public debt. That makes China a significant investor in US debt, but by no means our only creditor.
Does China have leverage as “our banker?” Not really. Default would do far more harm to China, which holds a total of $3.2 trillion in foreign currency reserves, than it would to the U.S. The simple truth is that China needs the U.S. more than we need China. There is still considerable domestic and global demand for U.S. debt as a safe haven, so we really don’t need China’s banking services, but China has no substitute for the American consumer market. China depends on the U.S. for a sizable portion of its manufacturing employment, shipping about one-third of its export goods to our market.
Paul is exactly right. Beijing needs the U.S. market, and can do little more than hem and haw as budget negotiations continue.
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