Why Does the U.S. Continue to Make Things Difficult for China?

Lately, political and economic issues have continued to arise between China and the U.S. For example, the climate conference, the Iran issue, the U.S. sale of weapons to Taiwan, the U.S. president meeting the Dalai Lama, the Google issue, the interest rates issue and so on. Why is the U.S. constantly picking on China? U.S. political and economic issues determine how America approaches its foreign policies.

1. The United States’ Purpose

As the number one national power, America’s main purposes are to maintain its absolute advantages against other countries and preserve its position as the world’s only superpower. The U.S. is currently suffering due to the international financial crisis and its long-term war overseas. These factors reduce its economic strength and, in turn, affect the U.S. government’s ability to accomplish the above purpose. Therefore, the U.S.’s priorities are currently developing its economy and improving the livelihood of Americans.

The U.S. restructured its banking system in order to develop its economy. Right now, the debts of some financial institutions have been converted to U.S. government equity.

The U.S. needs to pass a medical reform bill and re-establish itself as a manufacturing power in order to improve its economy and domestic living standards.

All these measures will require money.

Where does the money come from?

One way is through increased income taxes. Another is to increase its debt (the U.S. deficit has reached $1.6 trillion).

However, increasing income taxes while it is still recuperating is detrimental to its economic recovery. Therefore, the best solution is to increase its debt. The appreciation of the U.S. dollar creates an illusion that the U.S. dollar is an excellent investment tool.

Then who has the ability to loan to the U.S., China, Japan, the United Kingdom or others?

2. The United States’ Strategies

The U.S. has adopted both carrot and stick strategies against China.

First of all, the carrot approach was adopted. U.S. President Obama personally visited China and said many good things, with the hope that China would cooperate with the U.S by acting in accordance to U.S. procedures and loan money to the U.S. The Chinese government, aware that it has already loaned $1.5 billion worth of public and private bonds, did not agree after seeing the continuous increase in the supply of U.S. dollars, since it feared that the U.S. dollar would depreciate.

Afterward, the U.S. remembered one of the approaches that it had adopted in the past. In October 2008, the U.S. government threatened to sell Patriot interceptor missiles and Apache helicopters to Taiwan. Their aim was achieved with this threat. Within a month, China bought a debt of $65.9 billion. This amount is good enough to purchase 2,500 tons of gold, according to the international gold standards. Of course, in November 2008, the United States’ finance secretary, Henry Paulson, did not forget to compliment China’s emergence as a global economic leader in order to pacify China. The U.S. also did not forget to make use of the western authorities and China, especially by using a specific international investment bank’s domestic brokerages to claim that U.S. debt is the safest investment, to make sure China would benefit from the appreciation of the price of the treasury bills and the U.S. dollar.

Thus, a similar scenario happened again. The U.S. announced that, in order to defend Taiwan’s peace, it would sell weapons to Taiwan. At the same time, it declared that Taiwan’s military power is insufficient, and so it would sell advanced weapons to Taiwan. For the sake of religious freedom, the U.S. would meet up with the Dalai Lama, and for the sake of human rights, Google would start a world debate on internet freedom. All these events would leave China embarrassed. The U.S. would impose an anti-dumping duty of as high as 289 percent on China’s steel laminates for the sake of economic freedom. Oh, there are also the military, human rights and interests rate reports used to humiliate China.

Of course, as long as China does not purchase U.S. debt, more things like this will surface.

3. China’s Choices

The first choice: Listen to expert advice. Going against the U.S. involves too many risks. Buy the U.S. debt in exchange for peace. The U.S. will be satisfied and give China the carrot.

The Consequences:

1. After the U.S. gets the money, it will enhance its military power and improve the quality of life for Americans while maintaining its number one economic power position.

2. The U.S. will print money, and the financial institutions’ debts will become the U.S. government’s equity. As a result, the risks are transferred to China.

3. The economic crisis will develop into a U.S. banknote crisis. China will suffer serious inflation because the Chinese yuan does not have sufficient gold reserves as backup.

4. China will urge the U.S. to repay the debts, and the U.S. will accuse China of lending to the U.S. with bad intentions. The U.S. will not return the money. China will start a war, and the U.S. will already be well prepared for it.

The second option: China can opt to say no.

The consequence: China will be demonized.

The best option: Make good use of the U.S.’s relationship with Europe by having Japan purchase the U.S. debt, and thus affecting the manufacturing sectors of Europe and Japan. The U.S. will slowly reduce its pressure against China when faced with contradictory situations between Europe, Japan and the U.S. Then China can use its foreign financial stashes to purchase more gold reserves, leading to China having the ability to deal with the U.S. banknote crisis in future.

It is possible that the U.S. will start a war with Iran to divert attention (China’s military power is not strong enough to maintain its foreign interests; therefore it will purchase gold reserves instead of natural resources). China’s foreign investments will be affected. How badly will China be affected depends on China’s economic development and the readiness of its army.