Magazine article The American Conservative

Chinese Hostage Crisis

Magazine article The American Conservative

Chinese Hostage Crisis

Article excerpt

Fed up with American demands that it let its currency rise, and congressional threats of tariffs if it does not, China last week issued a threat of its own. Beijing rolled out its "nuclear option."

Two Chinese financial experts close to the regime issued a pointed warning. If the Americans don't get off our case about revaluing the renminbi, and if Congress keeps threatening tariffs, China may just dump a huge hoard of U.S. Treasury bonds and T-bills onto the world market and cause a worldwide run on the dollar.

Were China to engage in a dump of dollar assets, there might well be global abandonment of U.S. debt, forcing the Fed to hike interest rates to protect the U.S. currency. Should that happen, the housing market would freeze up and the economy head due south. The 10 percent drop in the Dow of recent weeks would then be but a sip of the awful drink that would follow.

China is bluffing, it is said. China would never do this.

Why not? Because the Chinese hold $900 billion in U.S. bonds and T-bills, the bulk of their $1.33 trillion in currency reserves. To dump U.S. bonds would shrink the value of China's remaining dollar assets. Why would China deliberately imperil the value of the largest cash hoard it has?

Moreover, such an unfriendly act would lead to American retaliation in the form of Smoot-Hawley tariffs on Chinese goods, which would not only bring Beijing's economic growth to a screeching halt but stop cold the flow of U.S. jobs, factories, and technology into the Middle Kingdom.

Thus China's exercise of the nuclear option will not happen, for it means mutual assured destruction. And China would not be so insane as to destroy a global trading system from which it has profited more than any other nation.

After leaving the threat on the table for days, to concentrate the mind of the Americans, China's central bank issued a soothing reassurance, telling the world--and Washington--that it has no desire to dump its dollar assets and believes the dollar has a crucial role to play.

But as was intended, the exercise was instructive. What Beijing has said is: Don't mess with us. Don't talk tough to us. Don't try to force us to revalue. And don't threaten us with tariffs, because we can do greater damage to you than you can to us, because we are now your bankers.

Welcome to the Global Economy, where American prosperity is hostage to the Marxist mandarins of Beijing, who now have the power to sink the dollar and throw the U. …

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