If you didn’t see my post about debt look below. If you didn’t see my post on China look deeper below….ANYWAY. Sometimes it is nice to see what you think validated by someone else. READ!
Obama’s leverage in China negotiations limited by massive U.S. debt
The U.S. and China are partnering more than ever in the battle against global warming, but the nations differ on hard targets for reductions in the greenhouse-gas emissions that cause it. China has some severe environmental problems because of its emissions. Perhaps a technology exchange could build a stronger bond on global warming and while developing a market for technologies developed in the U.S. for cleaning the environment.
China does support sterner sanctions to halt North Korea’s nuclear weapons program. But it differs with the U.S. on reining in Iran’s uranium enrichment program. It is possible the two countries can come to an agreement on how to move forward in parallel on Iran.
Improving the trade imbalance will be the biggest item on the agenda for President Obama. China could be a huge and lucrative market for American goods and services. But as long as China will not allow its currency to float freely and instead keeps it closely tied to the U.S. dollar, U.S. goods will remain expensive in China, while Chinese goods will continue to be cheap in the U.S. The only way to improve the trade imbalance would be for the yuan to be allowed to appreciate. While I’m sure the discussion will come up, I doubt the Chinese will budge on this issue.
For the Chinese, the biggest issue on the table will be the U.S. deficit and their biggest question will be how President Obama plans to get it under control. China has a big stick it can wield if it doesn’t like the answers. If China stops buying U.S. debt, most of President Obama’s plans — such as health care reform — would have to be shelved until the U.S. finds another lender.
Of course, if the Chinese did start selling U.S. debt, the drop in its value would cost them many billions as they tried to unwind their U.S. bond holdings. Unless they are willing to risk major losses, they would be ill-advised to wield their big stick. But for Obama to call this trip a win, he needs to bring home evidence of change from China, while for China, maintaining the status quo is a win. They don’t have to use their doomsday weapon — just having it is enough to let them say ‘no’ to Obama.
Lita Epstein has written more than 25 books including The Complete Idiot’s Guide to Foreign Currency Trading and Trading for Dummies.