How the US "can bring China to its knees"

It’s become increasingly common to hear the US discussed as if it’s at the economic mercy of China. Sure, it’s true that China is the world’s biggest foreign holder of US debt with nearly $800 billion in Treasuries. That said, Ambrose Evans-Pritchard points out a few tools, if drastic, that the US has at its disposal to defend its economic might.

Here’s his description of American leverage…

“It is fashionable to talk of America as the supplicant. That misreads the strategic balance. Washington can bring China to its knees at any time by shutting markets. There is no symmetry here. Any move by Beijing to liquidate its holdings of US Treasuries could be neutralized – in extremis – by capital controls. Well-armed sovereign states can do whatever they want.

“If provoked, the US has the economic depth to retreat into near autarky (with NAFTA) and retool its industries behind tariff walls – as Britain did in the 1930s under Imperial Preference. In such circumstances, China would collapse. Mao statues would be toppled by street riots.”

Evans-Pritchard paints the picture of a fairly dark and disturbing economic environment. Things would have to get pretty bad for these options to be employed. Still, there’s something refreshing about seeing the remnants of US economic power spelled out in no uncertain terms (…by a Brit no less).

The whole article is an interesting read, and covers how China’s $600 billion stimulus has been spent, how credit has exploded, and other issues in the Daily Telegraph’s coverage of how China is now the biggest risk to the world economy.

The Daily Reckoning