Wednesday, April 23, 2014
Dollar trap should see major US rethink
Global Times | August 17, 2011 02:15
By Global Times
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US Vice President Joe Biden started his visit to China today. Coincidentally, it is also the anniversary of the signing of the August 17 Communiqué between China and the US.

The visit will discuss a wide range of issues, of which the US debt will likely be a primary topic.

In a political debate in 2007, when asked the question "Is China an ally or an adversary?" Joe Biden, then a presidential candidate, answered "They're neither. The fact of the matter is, though, they hold the mortgage on our house." He also offered a solution to end that situation, by ending the war, raising taxes on the wealthy and reducing the deficit.

As the US gears up for another presidential election, the situation in Washington is not any better than it was four years ago. A political crisis was only avoided at the last minute in Capitol Hill early this month. The epic bipartisan struggle unnerved the whole world.

Freed of the need to make campaign commitments, now Biden has the opportunity to better explain US policy to his Chinese hosts, worried over Washington's ability to keep fiscal discipline and get its economy back on track. The newly released US economic data does not bode well though.

Meanwhile, Biden is facing a more demanding Chinese public, which is flexing more influence in government affairs. The public is requiring the Chinese government to better utilize its massive foreign exchange reserves. The Chinese holdings of $1.1 trillion in US debt could be translated into owing each Chinese citizen nearly 8,000 yuan.

It is hard to convince the Chinese public of the US' ability to honor commitments. The August 17 Communiqué, signed in 1982, laid the framework to gradually solve the historical problem of US selling arms to Taiwan. But in the following three decades, the issue has come up again and again to bother the bilateral relationship.

There is a certain sentiment within the US that China is caught in the dollar trap and is at the mercy of the greenback depreciation.

A certain amount of loss is inevitable on this investment but China has a card to play.

Some Chinese scholars are suggesting linking China's debt holding to other aspects of Sino-US relationship, including arms sales to Taiwan.

This is a possible option. The US should remember it has the most to win and the most to lose from a stable dollar.

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