The Chinese government has made five demands on the United States, including the cancellation of its chip exports ban and sanctions, during US Treasury Secretary Janet Yellen’s four-day China…
This bit in particular sums up why US is in a panic right now
“Finding buyers for US debt is the top mission of Yellen. From a medium-and-long-term perspective, China is disposing of US debt,” it says. “Who else will buy it? Japan is the biggest creditor of the US but cannot buy more. The United Kingdom is facing an economic recession and sold $30 billion of US debt in April.”
China holds <$1T of US debt. Sure, they’re the second largest foreign holder of US public debt, but we could easily replace that debt if needed. The Treasury itself bought much more than that after the 2008 crisis, and we could do it again. Private citizens hold way more than China does through mutual funds and whatnot, and investors would buy more if rates go up.
The real problem is that interest rates for public debt is going up, so we’ll end up paying a lot later share of our budget toward interest if we don’t reduce our debt load. Those older, cheap Treasuries will be maturing over the next decades, so the time to act is now. I’m in favor of raising taxes somewhat and cutting spending across the board (I think a lot of it is waste that could be caught in audits). But China doesn’t factor in at all when it comes to debt concerns.
Thing is that as US will be issuing more bonds there’s going to be little market for them. Back when 2008 crash happened, the only reason US pulled through was cause China stepped in to buy enough bonds to stabilize US market. Fat chance of that happening this time around.
Meanwhile, demand for dollar globally is dropping meaning that dollar based economy is starting to shrink. And major US allies are starting to have significant economic problems of their own, which means they’re not able to bail US out.
China doesn’t have the luxury of letting the US economy tank. If that were to happen there’s not enough demand around to keep enough of their factories working to avoid their economy from tanking as well.
About 16% of China’s exports in 2022 were to the USA. It would certainly be a significant hit, but to suggest there would no longer be adequate demand is unlikely to be true.
This bit in particular sums up why US is in a panic right now
China holds <$1T of US debt. Sure, they’re the second largest foreign holder of US public debt, but we could easily replace that debt if needed. The Treasury itself bought much more than that after the 2008 crisis, and we could do it again. Private citizens hold way more than China does through mutual funds and whatnot, and investors would buy more if rates go up.
The real problem is that interest rates for public debt is going up, so we’ll end up paying a lot later share of our budget toward interest if we don’t reduce our debt load. Those older, cheap Treasuries will be maturing over the next decades, so the time to act is now. I’m in favor of raising taxes somewhat and cutting spending across the board (I think a lot of it is waste that could be caught in audits). But China doesn’t factor in at all when it comes to debt concerns.
Thing is that as US will be issuing more bonds there’s going to be little market for them. Back when 2008 crash happened, the only reason US pulled through was cause China stepped in to buy enough bonds to stabilize US market. Fat chance of that happening this time around.
Meanwhile, demand for dollar globally is dropping meaning that dollar based economy is starting to shrink. And major US allies are starting to have significant economic problems of their own, which means they’re not able to bail US out.
China doesn’t have the luxury of letting the US economy tank. If that were to happen there’s not enough demand around to keep enough of their factories working to avoid their economy from tanking as well.
About 16% of China’s exports in 2022 were to the USA. It would certainly be a significant hit, but to suggest there would no longer be adequate demand is unlikely to be true.
For example, Russian oil exports lost a lot of their direct importers, yet demand has not dropped significantly or in a way that is harmful for them. The volume of their exports has remained relatively constant, but the fraction of the total that different importing countries represent has changed. Even the price dip recovered.