February 11, 2010

Then There's China.

Ed Morrissey at Hot Air, one of my favorite pundits, is musing today on the situation with China talking about dumping U.S. bonds in response to the sale of U.S. arms to Taiwan. He is, as usual, quite right about the potential of China using economic efforts as a military tool. The other consideration worth noting, is that like Iran today, this should not really have come as much of a surprise.

Let's preface the discussion by pointing out the fact that U.S. arms sales to Taiwan are nothing new. This is part of an on-going effort. Between 2001 and 2008, Taiwan received $7.7 billion in arms shipments from the United States. China has never been thrilled about it, having stalled the North Korean nuclear negotiations in 2008, partly at least, in response to previous arms sales to Taiwan, according to CNN.

So China has balked in the past, why are they now ramping up the threat meter? It's mainly because of the confluence of two points; (1) they see the President as having less resolve than his predecessor (i.e. he's weak) and (2) right now they know that they have a lot of leverage in the current U.S. financial situation because they own so much U.S. debt. The U.S. economy right now is the soft underbelly of the superpower. They know it and they're seemingly willing to use it.

But take a look again at those two points. Both of those points have Obama failure written all over them. Weakness is neither feared nor respected. Obama's bowing, and apologizing and diminishing of the United States may have won him admiration from the Nobel Committee for another Peace Prize, but it isn't causing adversarial states to treat the U.S. with any respect. It has diminished America in the eyes of the world - friend and foe alike. 

China has observed President Obama's retreat on missile shield deployment in eastern Europe as a result of Russian bellicosity on the issue.  They've simply applied a little bit of a different, clever, spin on the same approach and are expecting the same type of result that Russia got.

The other point is the debt owed to China. China owned $713 billion in U.S. debt in November 2008. It's not all Obama's debt, but since coming to office, his prodigal spending ways have ballooned the number even more.  the debt was over $800 billion at last count, and it could conceivably grow multiple-fold if Obama had his way. The Chinese might have a convenient excuse to put the brakes on Obama's spending and borrowing by using the Taiwan situation as the rationale. Shanghai Daily hinted at Chinese concern last December;

The same fears took hold almost one year ago when the US government said it would issue up to US$2.56 trillion of US Treasury bond debt to stimulate the economy to get through the recession.

This time the budget deficit is larger. The Obama administration on Monday proposed a budget of US$3.83 trillion for fiscal year 2011 with a forecast deficit of US$1.56 trillion in 2010.

The planned fiscal deficit is 10.6 percent of gross domestic product (GDP) - up from a 9.9 percent share in 2009 - the largest deficit as measured against GDP since World War II.

The President is following an unsustainable spending path, and the Chinese are starting to want no part of it, despite the growth boost it gives their own economy.  Whether that's the reason, or the Taiwan issue is the reason, or both, China feels it is safe for it to flex it's muscle because they aren't intimidated by, or enamored of, President Obama. Welcome to the club, China.

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