a visit to Beijing, Joe Biden won points for eating at a modestly-priced
and dumpling shop, but Beijing is skeptical that he and his fellow
will tighten their belts at home and end dollar depreciation as
of policy to cut the U.S. budget deficit.
Republic of China
China Should Link Taiwan
Arms Sales to Purchases of U.S. Debt
Beijing is frustrated over its lack of leverage over U.S. monetary
policy, since as the dollar depreciates, China's dollar holdings lose value.
But according to this editorial from China's state-controlled Global Times, Beijing
still has a card to play. This editorial suggests that unless the U.S. halts
arms sales to democratic Taiwan, another issue it considers vital to its
interests, it may cut back on future purchases of U.S. Treasury bonds.
U.S. Vice President Joe Biden
has begun his visit to China today. Coincidentally, today is also the
anniversary of the signing of the August
17, 1982 Sino-U.S. Communiqué [on the Taiwan question]. On this visit, a
wide range of issues will be discussed, but the primary topic is likely to be
the debt of the United States.
When asked the question "Is
China an ally or an adversary?" during a presidential election debate in 2007,
Biden responded, "They're neither. The fact of the matter, though, is that
they hold the mortgage on our house." He also offered a way to bring that situation
to an end: stop the Iraq War, raise taxes on the wealthy and cut the deficit.
Now, with the United States
gearing up for another presidential election, the situation in Washington is no
better than it was four years ago. On Capitol Hill early this month, a major crisis
was only avoided at the last minute. The epic bipartisan struggle unnerved the entire
Liberated from the need to
make any campaign commitments, Biden now has an opportunity to better-explain American
policy to his Chinese hosts, who are worried about Washington's capacity to maintain
fiscal discipline and get its economy back on track. Newly-released U.S.
economic data doesn't bode well.
Biden meanwhile is confronting
a far more assertive Chinese public, which is flexing more influence than ever
over government affairs. The public is demanding that the government better
utilize its massive foreign exchange reserves. Chinese holdings of $1.1
trillion in U.S. debt translate into nearly 8,000 yuan [$1251] for every
At the moment, convincing the
Chinese public of America's capacity to honor its commitments is an uphill
battle. The 1982 Communiqué serves as a framework for gradually resolving the
historic problem of American weapons sales to Taiwan. But in the three decades
that followed, the issue has emerged again and again to unsettle bilateral
Within the United States, there
is a certain sentiment that China is caught in a "dollar trap," meaning
that it is at the mercy of a depreciating greenback. This is incorrect. While a
certain amount of loss on this investment appears inevitable, China still has a
card to play. A number of Chinese academics suggest linking China's continued holding
of U.S. debt to other aspects of Sino-U.S. relations - including arms sales to
This is a viable option. The United
States should remember that it has the most to gain - or lose - from a stable
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